Tommie Carter

CRE Investment Analysis: A Financial Calculator Guide

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by

Tommie
in

Guide

In a Nutshell
  • Simplify Investment Decisions: Utilize financial calculators to analyze critical commercial real estate metrics like affordability, risk, and profitability (mortgage payments, DSCR, CoC, IRR, NPV).
  • Unlock the Power of the BA II Plus App: Master step-by-step instructions for calculating key financial metrics using this popular financial calculator app.
  • Make Data-Driven Choices: Ensure informed investment decisions by using accurate financial data and consulting professionals for complex calculations.

Here are some key questions that can be answered related to commercial real estate using a financial calculator, along with their significance and steps to calculate them using the BA II professional financial calculator app:

1. Mortgage Payments:

What will my monthly mortgage payments be?

Importance: Determines affordability and cash flow management.

Steps to Calculate (BA II Plus app):

  1. Enter loan amount (PV).
  2. Enter interest rate (I/Y).
  3. Enter loan term in months (N).
  4. Press PMT to get the monthly payment.

2. Debt Service Coverage Ratio (DSCR):

Does the property’s income cover its debt obligations?

Importance: Assesses financial risk and ability to meet loan payments.

Steps to Calculate:

  1. Divide net operating income (NOI) by annual debt service (mortgage payments).

3. Cash on Cash Return (CoC):

What percentage of my initial investment will I receive in annual cash flow?

Importance: Measures investment profitability and cash flow return.

Steps to Calculate:

  1. Divide annual cash flow by the total cash invested.

4. Internal Rate of Return (IRR):

What is the overall rate of return on the investment, considering cash flows and time value of money?

Importance: Evaluates the investment’s overall profitability and potential for growth.

Steps to Calculate (BA II Plus app):

  1. Enter cash outflows as negative values (CF0, CF1, CF2, etc.).
  2. Enter cash inflows as positive values.
  3. Press IRR to get the internal rate of return.

5. Net Present Value (NPV):

Is the investment worth more today than its future cash flows, considering the time value of money?

Importance: Assesses investment viability and potential for profit.

Steps to Calculate (BA II Plus app):

  1. Enter discount rate (I/Y).
  2. Enter cash flows (CF0, CF1, CF2, etc.).
  3. Press NPV to get the net present value.

6. Break-Even Analysis:

At what occupancy rate will the property’s income cover its expenses?

Importance: Determines risk tolerance and potential for profit or loss.

Steps to Calculate:

  1. Calculate fixed expenses.
  2. Calculate variable expenses per unit.
  3. Divide total fixed expenses by the difference between rent per unit and variable expenses per unit.

Remember:

  • Consult the app’s manual for specific keystrokes and functions.
  • Use accurate financial data for reliable results.
  • Seek professional advice for complex calculations or investment decisions.
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Disclaimer

  • We do not give tax or legal advice.
  • Please consult an attorney, CPA, or licensed professional for your needs.
  • All examples and case studies are for educational purposes only.