Underwrite the bigger deal before the bigger mistake.

Cap rate is net operating income divided by the purchase price or value. Net operating income is your annual rental income minus operating expenses, before any mortgage payment. For example, 60,000 dollars of net operating income on a 1,000,000 dollar property is a 6 percent cap rate. It is a common way to value commercial and multifamily deals.

Cap rates vary by market, property class, and interest rates, but many investors see roughly 5 to 8 percent as a typical range, with higher cap rates signaling more risk or weaker locations and lower cap rates signaling safer, higher-demand assets. There is no single right number, only what fits the deal and the market.

Commercial and larger multifamily properties are valued mainly on income, usually by dividing net operating income by a market cap rate. That means raising rents or cutting expenses can directly increase value. This income approach differs from single-family homes, which are valued mostly on comparable sales.

A rent roll is a unit-by-unit list of current tenants, lease terms, rents, and occupancy. It is the foundation of underwriting a multifamily or commercial deal because it shows real income rather than a seller's projection. Always verify the rent roll against leases and bank deposits before trusting the numbers.

Build net operating income from the actual rent roll and trailing expenses, not the seller pro forma, then check debt service, cap rate, and cash-on-cash return. Account for vacancy, capital needs, tax reassessment, and insurance changes. Bigger deals have more moving parts, so verified actuals matter more than projections.