Blog Post: Key Ratios to a Commercial Real Estate Purchase

Have you ever looked at a commercial real estate listing and felt like you were reading a secret code? Acronyms like NOI, Cap Rate, BTCF, and GRM can be intimidating—but they’re the keys to unlocking whether a property is worth your investment. In this post, we’ll break down these ratios so you know exactly what they mean, why they matter, and how to use them to make smart buying decisions.

1. Start with the Most Important Number: NOI

The Net Operating Income (NOI) is the foundation of commercial property analysis. It’s calculated by taking the property’s gross income and subtracting all reasonable operating expenses.
Once you know the NOI, you can use it to determine other crucial ratios like the Before-Tax Cash Flow (BTCF) and Capitalization Rate (Cap Rate).

2. Understanding the Cap Rate

The Cap Rate is a quick way to measure the potential return on investment based on the property’s income. A high cap rate can mean higher returns but may also come with more risk. A low cap rate typically means lower returns, but the property may be more stable.

3. The GRM Advantage

The Gross Rent Multiplier (GRM) helps you compare properties based on their price and rental income. It’s a simple ratio but can be useful for quickly spotting overpriced deals. But I don't personally use this number. I don't find it's accurate.

4. Watch the Operating Expenses

Operating expenses are often divided into four major categories:

• Property taxes

• Insurance

• Utilities

• Maintenance/repairs

Knowing how to critically evaluate these numbers—especially in a seller’s statement—helps ensure the property’s true profitability.

5. Fall in Love with the Numbers

Once you understand the expenses and potential NOI, you can plug those numbers into your analysis tools (like our Property Data Collection Form or the Rapid Ratio Real Estate App) to see if the deal makes sense.

Remember, in commercial real estate investing, numbers tell the real story. If you fall in love with the numbers first, you’ll make better investment choices and avoid emotional decision-making.

Watch the full video here:

Download the Property Data Collection Form inside the program to start analyzing deals like a pro.