You've learned all the individual metrics. Now let's put them together on a real deal and see how they work in combination. This is the kind of walkthrough you'll do on every property you evaluate for the rest of your CRE career.

The deal

A single-tenant NNN retail property — an AutoZone store on a busy Central Florida arterial. Here are the facts from the OM:

Asking price: $2,800,000
Tenant: AutoZone (investment-grade, NYSE: AZO)
Lease term remaining: 8 years on primary term, 4 × 5-year options
Annual base rent: $165,000
Rent escalations: 10% bump at the start of each option period
Lease type: Absolute NNN (tenant pays everything including roof and structure)
Building size: 7,400 sq ft
Land: 0.85 acres
Year built: 2017
Location: 30,000+ VPD traffic count, strong retail corridor in Orlando MSA

Broker's quoted cap rate: 5.89%

Let's run it.

Step 1: Recalculate NOI

This is an absolute NNN lease, so the tenant pays all operating expenses. The owner's only real expenses are:

CapEx reserves: basically zero because even the roof is the tenant's responsibility
Asset management / administrative: let's estimate $2,000/year for accounting, tax prep, and entity maintenance

So:

Gross rent: $165,000
Vacancy: 0% (tenant is in place and investment-grade)
Other income: $0
Effective Gross Income: $165,000
Operating expenses: $2,000
NOI: $163,000

Step 2: Recalculate cap rate

Cap Rate = $163,000 ÷ $2,800,000 = 5.82%

The broker quoted 5.89%. Pretty close — on an absolute NNN deal with a strong credit tenant, there's not much room for broker manipulation because there are no expenses to understate. Cap rate checks out.

Step 3: Size the loan

Assume you're going to use a local bank for financing. Typical terms:

Interest rate: 7.0% (rates in 2026)
Amortization: 25 years
Term: 10 years with balloon
DSCR minimum: 1.25
Max LTV: 70%

Loan constant calculation. At 7.0% / 25-year amortization, the annual loan constant is approximately 0.0848.

Max loan sized by DSCR: ($163,000 NOI ÷ 1.25 DSCR) ÷ 0.0848 loan constant = $1,538,443

Max loan sized by LTV: $2,800,000 × 70% = $1,960,000

Binding constraint: DSCR is smaller, so the max loan is $1,538,443. Round down to $1,535,000 to leave a buffer.

Down payment = $2,800,000 − $1,535,000 = $1,265,000 (about 45% equity)

This is the reality of the 2026 rate environment: on lower-cap-rate deals, DSCR is squeezing leverage to 55% rather than the 70% max by LTV.

Step 4: Check debt yield

Debt yield = $163,000 ÷ $1,535,000 = 10.6%

Above a typical 9% minimum — comfortable.

Step 5: Calculate cash-on-cash return

Annual debt service at 7% on $1,535,000 over 25 years ≈ $130,200/year

Annual pre-tax cash flow = $163,000 − $130,200 = $32,800

Total cash invested (down payment + closing costs + legal + DD):

Down payment: $1,265,000
Closing costs and title: $30,000
Legal + DD: $20,000
Lender fees + appraisal: $18,000
Total: $1,333,000

Cash-on-cash return = $32,800 ÷ $1,333,000 = 2.46%

That looks bad for a first year, but notice what's happening: we're earning 5.82% on the whole asset and paying 7% on the debt. Negative leverage is eating most of the return.

Step 6: Project total return over 10 years

Where this deal actually makes its money:

Rent escalation

At year 9, the option period kicks in with a 10% rent bump. Year 9 NOI becomes roughly $179,000, pushing cash flow to around $49,000/year. Not huge, but real.

Principal paydown

Over 10 years, you'll pay down approximately $290,000 of principal. That's equity you didn't have at closing.

Exit value

At year 10, assuming cap rates are stable (a big assumption), the property is worth: $179,000 NOI ÷ 0.0582 cap = $3,075,000

Minus selling costs (3% broker commission + title/legal): $92,000 Minus loan payoff: $1,245,000 (approximate after 10 years of amortization) = Net sale proceeds: $1,738,000

Total return calculation

Year 1–10 cumulative cash flow: approximately $370,000
Sale proceeds: $1,738,000
Total cash returned: $2,108,000

Equity multiple: $2,108,000 ÷ $1,333,000 = 1.58x

IRR: Using Excel's XIRR on the full cash flow stream, approximately 5.8%

Step 7: Evaluate

So here's the picture:

Cap rate: 5.82%
Cash-on-cash year 1: 2.46%
Cash-on-cash year 10: about 3.7%
Debt yield: 10.6%
DSCR: 1.25
10-year equity multiple: 1.58x
10-year IRR: 5.8%

Is this a good deal?

In 2026, probably not. A 5.8% IRR is barely above the risk-free rate on 10-year treasuries. You're taking commercial real estate risk, illiquidity risk, interest rate risk, and tenant concentration risk — and earning only a modest premium. Worse, negative leverage is grinding your equity down.

What would make it work?

Lower price. Buy at a 7.0% cap ($2,328,000) instead of 5.82%. The same rent check becomes a dramatically better deal.
Cheaper financing. SBA 504 at 5.5% instead of bank debt at 7% flips the leverage from negative to positive.
Better tenant optionality. Longer primary term (15 years instead of 8) would command a lower exit cap rate.
Rent growth. A lease with 2% annual bumps instead of option-period-only bumps would meaningfully improve the IRR.

Most likely move: counter at a 6.5–7% cap and walk if the seller won't budge.

What this walkthrough teaches

Three things:

1. You can do this math on any deal in 30 minutes

Given the asking price, the rent, the lease details, and current debt costs, you can fully underwrite a simple NNN deal before lunch. This is the skill brokers and investors refer to when they say "it pencils" or "it doesn't pencil."

2. The numbers tell the truth

You'll hear brokers say "it's a 6 cap" as if that's the answer. It's the start of the question. A 6 cap can be a great deal or a terrible deal depending on leverage, tenant credit, lease term, and submarket. The full underwriting tells you which.

3. Cap rate and cash-on-cash are different answers to different questions

This deal has a 5.82% cap rate and a 2.46% year-one cash-on-cash. Both are correct. Both describe the same deal. Neither alone tells you whether to buy.

Your action item

Pick one NNN listing from Crexi or LoopNet right now and run it through this same walkthrough. Use today's interest rates. Calculate NOI, cap rate, max loan size, cash-on-cash, and a rough 10-year IRR. Don't use a template — write it out line by line until the math feels second nature.

Your first few attempts will be slow. By your tenth deal, you'll be able to do the whole thing in 15 minutes, and by your fiftieth you'll spot bad deals in five. That's the level you need to reach before you submit your first LOI.

What to take away

On any deal, follow the same sequence: verify NOI → verify cap rate → size the loan → check DSCR and debt yield → calculate cash-on-cash → project IRR and equity multiple.
Negative leverage (cap rate below interest rate) is the silent killer of 2026-era deals.
A 5.8% cap NNN deal with bank debt at 7% is a weak investment — not because the property is bad but because the cost of capital is too high.
The answer to "is this a good deal?" is never a single number — it's the pattern all the metrics tell together.
Practice on real listings until the workflow is automatic.

You've finished Course 2. You now speak the language of commercial real estate. In Course 3 you'll learn to read the financial statements that feed these calculations — the rent roll, the T-12, and the operating statement — so you can verify the numbers yourself instead of trusting the broker's OM.

Ready? Continue to Course 3: Reading CRE Financial Statements →

Putting It All Together — A Full NNN Deal Walkthrough