Advanced Commercial –Formulas

1) Return on Investment: NOI ÷ Investment = ROI

2) Operations Cash Flow (Income Approach)

Step 1: Estimate Potential Annual Income
Step 2: Subtract Vacancy & Credit Loss = Effective Rental Income
Step 3: Add Other Income = Gross Operating Income
Step 4: Subtract Operating Expenses = NOI
Step 5: Subtract Annual Debt Service = CFBT
Step 6: Subtract Tax Liability = CFAT

3) Sale Proceeds Cash Flow (SPCF)

Sale Price – Costs of Sale – Mortgage Balance = SPCF Before Tax
SPCF Before Tax – Tax Liability = SPCF After Tax
4) Overall Capitalization Rate: NOI_______
Value (Sale price)

5) Return on Equity: __________Cash Flow (CFBT)______________

Down payment (or Equity or Initial Investment
Note: This can also be done using CFAT
6) Leverage Ratio or Loan-To-Value Ratio: _Loan_
Value

7) Return on Investment (ROI/Sale Proceeds Rate)

Step 1: Calculate Operations CFBT/CFAT for the year it is sold
Step 2: Calculate Sale Proceeds CFBT/CFAT
Step 3: Add Operations & Sale Proceeds for Total CFBT/CFAT
Step 4: Total CFBT/CFAT – Initial Investment (D/P or Equity) = Profit
Step 5: Profit ÷ Initial Investment (D/P or Equity) = ROI

8) Declining Balance CCA (Real Estate Purchase)

Step 1: Purchase Price – Land Value = Building Value
Step 2: Building Value x CCA% x 50% (for first year) = Depreciation
Step 3: Building Value – Depreciation = UCC @ End of Year 1
Step 4: UCC x CCA% = Depreciation for Year 2
Step 5: UCC – Depreciation = UCC @ End of Year 2

9) Straight Line CCA

Step 1: Calculate cost of the asset
 Step 2: Asset Cost x CCA% (No 50% rule) = Depreciation
Step 3: Asset Cost – Depreciation = UCC @ End of Year 1
Step 4: UCC – Depreciation Calculated in Step 2 = UCC @ End of Year 2

10) Value by the Direct Capitalization Method: _ NOI__

Cap Rate

11) Value by the Gross Profit Multiplier: 1) Gross Profit × Multiplier = Value or
(2 options) 2) Sale Price ÷ Gross Profit = GPM

12) Price Per SF: Price

SF
Note: Remember, this is annual rent.

13) Percentage Rent (Long method)

Step 1: Calculate minimum base rent (SF x $/SF)
Step 2: Minimum Rent ÷ % Rent factor = Sales Base Minimum
Step 3: Gross Sales – Sales Base Min = Sales Over Base Minimum
Step 4: Sales Over Base Minimum x % Rent Factor = % Rent
Step 5: Minimum Rent + % Rent = Total Rent

14) Percentage Rent (Short Cut)

Step 1: Gross Sales x % Rent Factor = Total Rent
Step 2: Calculate minimum base rent (SF x $/SF)
Step 3: Total Rent – Minimum Rent = % Rent
Step 4: If % rent is a (–), minimum rent only is paid
15) R/U Factor (3 options): 1) Rentable Area ÷ Usable Area = R/U Factor or
2) Usable Area x R/U Factor = Rentable Area or
3) Rentable Area ÷ R/U Factor = Usable Area
16) Capital Gain:
Sale Price – Adjusted Cost Base – Cost of Sale (Adjusted Cost Base = Original Sale $ –
Acquisition Costs – Capital Improvements Made During the Holding Period)

17) Taxable Capital Gain: Capital Gain x 50%

18) Declining Balance CCA (Existing Corporation)

Step 1: Carry Forward UCC x CCA% = Depreciation
Step 2: UCC – Depreciation = UCC on Carry Forward
Step 3: New Purchases – Dispositions x CCA% x 50% (first year) = Depreciation
Step 4: New Purchases – Dispositions – Depreciation = UCC on New
Step 5: UCC on Carry Forward + UCC on New = UCC @ End of Year
Step 6: Assuming no new purchases the next year: UCC x CCA% = Depreciation
Step 7: UCC – Depreciation = UCC @ End of Year

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19) Declining Balance CCA (New Corporation)
Step 1: Asset Value x CCA% x 50% (first year) = UCC
Step 2: Pro-Rate: UCC x # of Days Incorporated = Depreciation 365 (if a leap year use 366)
Step 3: Asset Value – Depreciation = UCC @ End of Year 1
Step 4: UCC x CCA% = Depreciation
Step 5: UCC – Depreciation = UCC @ End of Year 2

20) Recaptured CCA

Step 1: Improvement Allocation @ Purchase
Step 2: Improvement Allocation @ Sale
Step 3: Use lesser of the two = Improvement Allocation
Step 4: Imp. Allocation – Undepreciated Improvements @ Sale = Recapture

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