The One-Minute Deal Review: Cap Rate, DSCR, Cash-on-Cash and the One Question Most People Miss
Most real estate deals do not need an hour of analysis before you know whether they deserve another hour.
You can get surprisingly far with a one-minute review if you focus on the right outputs.
For an income-producing property, I want three core metrics and one strategic question:
1. Cap rate 2. DSCR 3. Cash-on-cash return 4. What has to go right for this deal to work?
The first three are math. The fourth is judgment.
Cap rate: what does the property produce relative to price?
Cap Rate = NOI / Purchase Price
If a property produces $200,000 in NOI and costs $2.5 million:
$200,000 / $2,500,000 = 8.0%
Cap rate is useful because it looks at property-level income before financing.
It lets you compare the asset’s unlevered economics with other opportunities and market pricing.
But cap rate does not tell you whether the debt works.
DSCR: can the property carry the loan?
DSCR = NOI / Annual Debt Service
If NOI is $200,000 and annual debt service is $150,000:
$200,000 / $150,000 = 1.33x
That means the property produces $1.33 of NOI for every $1.00 of scheduled debt service.
A lender may require a particular minimum DSCR depending on property, loan program, and market. The exact threshold is not universal.
What matters in the fast screen is the cushion.
A property at 1.05x has almost no room for NOI disappointment. A property at 1.50x has much more breathing room.
Cash-on-cash: is your equity working?
Cash-on-Cash Return = Annual Pre-Tax Cash Flow / Initial Cash Invested
Assume annual cash flow after debt is $50,000.
If you invested $500,000 of total cash, cash-on-cash is 10%.
But make sure the denominator includes the real cash required:
Using only the down payment can make the return look better than reality.
Why you need all three
A deal can have a high cap rate and weak cash-on-cash because financing is expensive.
A deal can have a strong cash-on-cash return and thin DSCR because leverage is aggressive.
A deal can have strong DSCR and mediocre equity returns because too much cash is invested.
The three metrics look at different layers:
Now ask the question the ratios cannot answer
What has to go right?
Suppose the deal shows:
Looks good.
Then you learn those numbers assume occupancy rises from 58% to 90%, rents increase 20%, insurance stays flat, payroll is reduced, and the lender allows interest-only payments during stabilization.
The metrics are not wrong. The assumptions are doing all the work.
That is why I want the strategic question.
Turn the answer into a diligence list
If the deal requires rent growth, verify market rents and tenant sensitivity.
If it requires occupancy growth, verify demand, competition, lead flow, marketing, and management capacity.
If it requires expense savings, verify the existing contracts and actual invoices.
If it requires refinance, verify future DSCR and likely loan balance.
The one-minute screen should tell you what to investigate next.
Use simple ratings carefully
I like a simple communication layer such as Bad, Good, and Stellar.
Bad means the economics or risk fail an important threshold.
Good means the numbers work but key assumptions need diligence.
Stellar means there is enough cushion that ordinary misses do not immediately destroy the return.
The label is not the underwriting. It is a way to communicate the underwriting quickly.
The best one-minute review ends with a decision
After a fast screen, make one of four decisions:
Do not let every lead become an analysis project.
The purpose of fast underwriting is not to be less rigorous. It is to focus rigor on the opportunities that actually deserve it.
Add one downside toggle
If I could add only one feature to a one-minute calculator, it would be a downside toggle.
Click it and make a few normal changes automatically: NOI down 5%, expenses up 5%, interest rate up, or exit cap modestly higher. The exact stress depends on the asset.
Then show the same three metrics again.
Maybe the base case is:
The downside might become:
That tells a very different story.
Speed should create focus
A one-minute review is not anti-analysis. It is anti-wasted-analysis.
If the initial screen shows that debt does not cover, the seller is far above supportable value, and the business plan requires heroic assumptions, you can move on or restructure quickly. If the screen is strong, you can justify ordering the reports, calling the lender, walking the property, and spending the time to build the detailed model.
The best investors are not the people who analyze the most deals for the longest time. They are the people who know where deeper analysis will create value.
That is the real purpose of a fast calculator: make the next decision obvious.
Every formula here is in the free calculator, and the full math appendix in The REbuild works all 31 of them with real numbers.
