Understanding Cash Flow, DSCR, and LTV in Commercial Real Estate

Commercial real estate success hinges on understanding three critical metrics: Cash Flow, Debt Service Coverage Ratio (DSCR), and Loan-to-Value (LTV). Calculating these metrics traditionally required complex spreadsheets and manual data entry, modern solutions like Cactus now automate these calculations, ensuring accuracy and saving countless hours.

Cash Flow: The Lifeblood of Commercial Real Estate

Cash flow represents the net income generated by a property after accounting for all operating expenses and debt service. Understanding this metric is crucial for evaluating investment potential and ongoing property performance.

Components of Cash Flow Analysis

Effective Gross Income (EGI):

• Rental income from all units
• Additional income (parking, storage, etc.)
• Vacancy and collection loss adjustments

Operating Expenses:

• Property taxes and insurance
• Utilities and maintenance
• Management fees
• Capital expenditure reserves

Traditional calculation methods required manually inputting these figures into spreadsheets—a time-consuming process prone to errors. Cactus automatically extracts this data from rent rolls and operating statements, calculating cash flow metrics instantly while eliminating manual entry errors.

Real-World Application

Consider a 100-unit multifamily property: Monthly rent: $1,200 per unit Gross Potential Income: $1,440,000 Vacancy (5%): -$72,000 Other Income: $50,000 Operating Expenses (45%): -$648,000

Annual Net Operating Income: $770,000 Debt Service: -$500,000 Net Cash Flow: $270,000

Cactus processes these calculations automatically, allowing investors to run multiple scenarios instantly and identify optimal investment strategies.

DSCR: Measuring Debt Payment Capability

Debt Service Coverage Ratio measures a property's ability to cover its debt payments with its operating income. Lenders typically require a minimum DSCR of 1.25, though requirements vary by property type and market conditions.

DSCR Calculation Made Simple

DSCR = Net Operating Income / Annual Debt Service

Traditional Method:

1. Calculate annual NOI manually
2. Input debt service parameters
3. Create formula in spreadsheet
4. Verify calculations
5. Adjust for different scenarios

Cactus Method:

1. Upload property financials
2. Enter loan terms
3. Receive instant DSCR calculations for multiple scenarios

Understanding DSCR Thresholds

DSCR Interpretations: 1.0: Property barely covers debt payments 1.25: Typical minimum lender requirement 1.5+: Strong debt coverage position

Cactus automatically flags DSCR values below lender thresholds and suggests adjustments to reach target ratios, eliminating the need for manual scenario testing.

LTV: Balancing Leverage and Risk

Loan-to-Value ratio represents the loan amount divided by the property's value, indicating leverage level and risk exposure. Understanding LTV helps investors optimize their capital structure while meeting lender requirements.

LTV Considerations

Traditional LTV Analysis:

• Manual property valuation inputs
• Spreadsheet calculations
• Individual scenario testing
• Manual lender requirement checking

Cactus streamlines this process by:

• Automatically calculating multiple valuation scenarios
• Comparing results against lender requirements
• Suggesting optimal loan structures
• Providing instant sensitivity analysis

Market-Specific LTV Standards

Different property types and markets have varying LTV expectations: Multifamily: 75-80% Office: 65-75% Retail: 65-75% Industrial: 65-75%

Cactus maintains updated market standards and automatically alerts users when deals fall outside typical parameters.

How Cactus Transforms Metric Analysis

Traditional spreadsheet analysis requires:

• Hours of manual data entry
• Complex formula creation
• Constant error checking
• Limited scenario testing capability

Cactus automates the entire process:

1. Upload property documents
2. Enter basic deal parameters
3. Receive instant analysis of all key metrics
4. Run unlimited scenarios
5. Generate professional reports

Real Impact:

• 92% reduction in analysis time
• 30% improvement in accuracy
• Elimination of formula errors
• Instant scenario testing
• Standardized reporting

Making Better Investment Decisions

Understanding these metrics is crucial, but speed and accuracy in calculating them can make the difference between winning and losing deals. While traditional spreadsheet methods require hours of manual work and introduce error risks, Cactus automates these calculations, allowing investors to:

• Analyze more deals in less time
• Make faster, data-driven decisions
• Identify optimal deal structures
• Maintain consistent analysis standards
• Focus on strategy rather than calculations

Take Your Analysis to the Next Level

Stop spending hours building spreadsheets and checking formulas. Visit www.trycactus.com/demo today to see how our platform can transform your investment analysis process. Join the growing number of investors who trust Cactus to provide accurate, instant metric calculations for every deal.

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