Commercial value is tied closely to durable income. Small changes in occupancy, expenses, or cap rate can move value dramatically, which makes disciplined assumptions essential.
Normalize gross potential income
Build rent from units, rentable area, leases, or another defensible operating unit. Separate current rent from market rent and document when increases can legally or practically occur.
Other income should be itemized rather than bundled into a single optimistic number.
Move from vacancy to effective income
Apply vacancy and credit loss before calculating effective gross income. A fully occupied building can still have collection loss, concessions, or near-term rollover risk.
Then subtract operating expenses, but exclude financing and depreciation from NOI. This keeps cap-rate comparisons consistent.
Check debt coverage and exit sensitivity
DSCR shows whether NOI covers annual debt service. Lenders may use their own vacancy, expense, and rate assumptions, so a borrower model should include a lender-style case.
Exit value depends on future NOI and exit cap rate. Test a higher exit cap rate rather than assuming today's pricing environment continues unchanged.
- Review the rent roll and lease expirations.
- Normalize taxes after sale when reassessment is possible.
- Separate owner-paid utilities and recoverable expenses.
PropLurk keeps assumptions and outputs together so you can test the downside before moving a deal into your pipeline.
Run this analysis on your deal.
Your first three analyses each month are free. No credit card required.