How do I analyze a commercial investment in Atlanta or Gwinnett?

Start with income, not price. Confirm the rent actually collected, subtract the operating costs the owner pays (taxes, insurance, common-area maintenance, management, repairs) to get net operating income (NOI), then divide NOI by the price to get the cap rate. Cross-check the income value against comparable sales, the lease rollover schedule, and what the building needs next year before you set your price.

Is a higher cap rate better?

It usually means more income for the price, and usually more risk. Cheap income is often cheap for a reason. Check the leases and the building before you celebrate.

Does cap rate include my mortgage?

No. Cap rate is the building, unfinanced. Your loan changes your cash flow, not the cap rate.

What cap rate should I target in Gwinnett?

It depends on the tenant, the lease, and the location. Anyone who gives you one number for the whole county is guessing. Ask about a specific building and I will give you a specific answer.

CRE 101 · deweyluong.realtor

Commercial Real Estate Investment Analysis in Atlanta: Cap Rate and NOI, Worked Step by Step

Cap rate and NOI: the two numbers every commercial buyer needs first. By Túy “Dewey” Luong, CCIM — Founding Broker, SERHANT. Atlanta · 318 closed sales / $281.2M career volume · 678-707-2498

Túy “Dewey” Luong, CCIM, Founding Broker, SERHANT. Atlanta

Most buyers look at price first. Experienced buyers look at income first. Price tells you what the seller wants. Income tells you what the building earns. Two numbers connect them.

NOI is what is left. Net operating income is the rent the building actually collects, minus the costs to run it. Taxes, insurance, maintenance, management. It does not include your loan payment. It does not include income tax. NOI is the building's paycheck before the bank gets paid.

Cap rate is the return at a given price. Take the NOI and divide it by the price. That percentage is the cap rate.

Here is the whole formula:

Cap rate = NOI divided by price

Worked example. The numbers below are made up to teach the math. This is not a real property.

A small retail building collects $90,000 a year in rent after vacancies.
Running costs are $18,000 a year.
NOI is $72,000.
The asking price is $1,200,000.
$72,000 divided by $1,200,000 is 6.0%. The cap rate at the ask is 6.0%.

Run it backwards and it gets useful. If you want a 6.5% return on that same $72,000 of income, the most you can pay is $72,000 divided by 6.5%, which is about $1,108,000. Same building. Same income. The cap rate you demand sets your price.

A Gwinnett worked example

The numbers below are illustrative, to teach the math. This is not a real property and not a market statistic.

A small retail building in Gwinnett collects $120,000 a year in rent after vacancies.
Operating costs the owner pays — taxes, insurance, common-area maintenance, management, repairs — are $30,000 a year.
NOI is $90,000.
At an asking price of $1,500,000, the cap rate is $90,000 divided by $1,500,000 = 6.0%.
If your analysis says this income is worth a 6.25% return, the value is $90,000 divided by 6.25% = $1,440,000 — $60,000 under the ask, before you price in lease rollover or repairs.

That gap between the ask and the income value is where a commercial investment analysis earns its keep in Atlanta and Gwinnett: it turns an opinion about price into a number you can defend to a lender, a partner, or a seller.

Where buyers get fooled. Sellers quote NOI that leaves things out. No management cost. No reserves. Rent from a tenant who is about to leave. Before you trust a cap rate, ask three questions. Is the rent real and collected, or just on paper? What costs did the seller leave out? How much of the income rolls over in the next two years?

A cap rate is a starting point, not an answer. It says nothing about the loan, the lease length, or what the building needs next year. But if you cannot run NOI and cap rate clean, every other number in the deal is built on sand.

Want me to run this on a building you are looking at? Reply with the address. I will tell you what I see.

Frequently asked questions

How do I analyze a commercial investment in Atlanta or Gwinnett?: Start with income, not price. Confirm the rent actually collected, subtract the operating costs the owner pays (taxes, insurance, common-area maintenance, management, repairs) to get net operating income (NOI), then divide NOI by the price to get the cap rate. Cross-check the income value against comparable sales, the lease rollover schedule, and what the building needs next year before you set your price.
Is a higher cap rate better?: It usually means more income for the price, and usually more risk. Cheap income is often cheap for a reason. Check the leases and the building before you celebrate.
Does cap rate include my mortgage?: No. Cap rate is the building, unfinanced. Your loan changes your cash flow, not the cap rate.
What cap rate should I target in Gwinnett?: It depends on the tenant, the lease, and the location. Anyone who gives you one number for the whole county is guessing. Ask about a specific building and I will give you a specific answer.

See current commercial investment opportunities in Duluth and Gwinnett.

Download the free commercial investment analysis worksheet (PDF)