Question 1

What is a good cap rate for commercial real estate in Texas?

Accepted Answer

Cap rates in Texas vary by asset class and market. For industrial and warehouse properties in Houston, a good cap rate ranges from 5.5% to 7.5%. In Dallas-Fort Worth, industrial cap rates typically run 5.2% to 7.1%. Retail strip centers in Texas generally trade between 5.5% and 7.2%. Multifamily cap rates are compressed lower, often 4.8% to 6.5% depending on submarket. Office carries higher cap rates of 6.2% to 9.0% due to elevated vacancy. Use this free Texas commercial real estate investment calculator to compare your specific deal against current market benchmarks.

Question 2

What is a good cash-on-cash return for commercial real estate?

Accepted Answer

A cash-on-cash return of 6% to 10% is generally considered solid for Texas commercial real estate in 2026. Returns above 10% are strong but may indicate higher risk or deferred maintenance. Returns below 5% may not adequately compensate for illiquidity and management burden. This calculator shows your Year 1 cash-on-cash return and also adjusts it for known CapEx and deferred maintenance — giving you the real number, not just the pro forma.

Question 3

What DSCR do commercial lenders require in Texas?

Accepted Answer

Most Texas commercial lenders require a minimum debt service coverage ratio (DSCR) of 1.25x, meaning the property's net operating income must be 25% greater than annual debt service. Agency multifamily lenders often require 1.25x minimum. CMBS and conventional lenders typically want 1.25x to 1.30x. Bridge lenders may accept lower DSCRs for value-add deals. A DSCR below 1.0x means the property cannot service its own debt and will be difficult to finance.

Question 4

How do I calculate IRR for a commercial real estate investment?

Accepted Answer

IRR (internal rate of return) for commercial real estate is calculated by finding the discount rate that makes the net present value of all cash flows — including the initial equity investment, annual cash flows, and net proceeds from sale — equal to zero. This calculator automatically models annual cash flows over your hold period with income growth assumptions, calculates the terminal value at your exit cap rate, subtracts the remaining loan balance and selling costs, then computes the leveraged IRR. A target IRR for Texas commercial real estate is typically 10% to 15% for core-plus or value-add deals.

Question 5

How does deferred maintenance affect commercial real estate investment returns?

Accepted Answer

Deferred maintenance directly reduces your effective cap rate and cash-on-cash return in Year 1 and beyond. For example, a warehouse trading at a 7.0% cap rate with $200,000 in immediate roof and HVAC repairs has an effective Year 1 cap rate of approximately 5.8% — a significant difference. This calculator's CapEx-adjusted returns panel shows exactly how known deferred maintenance impacts your real returns. A pre-acquisition Property Condition Assessment (PCA) per ASTM E2018 is the standard way to quantify deferred maintenance before closing.

Question 6

What is the difference between cap rate and cash-on-cash return?

Accepted Answer

Cap rate (capitalization rate) measures a property's income return relative to its purchase price, ignoring financing: NOI divided by purchase price. It allows comparison between properties regardless of how they're financed. Cash-on-cash return measures the actual cash return on the equity you invested, after paying debt service: annual pre-tax cash flow divided by total cash invested (down payment plus closing costs). A property can have a high cap rate but a low cash-on-cash return if it is heavily leveraged with high-rate debt.

Question 7

What commercial real estate markets in Texas have the best investment returns?

Accepted Answer

Texas commercial real estate offers strong fundamentals across multiple markets in 2026. Houston leads in industrial and warehouse investment with cap rates of 5.5% to 7.5% and strong port and energy sector demand. Dallas-Fort Worth offers the highest transaction volume with industrial cap rates of 5.2% to 7.1%. San Antonio provides higher yields on industrial assets (6.0% to 8.3%) with lower acquisition costs. Austin offers compressed cap rates due to tech sector demand. Use this free calculator to compare deals across all four markets side-by-side.

Question 8

Should I get a commercial property inspection before buying?

Accepted Answer

Yes. An ASTM E2018 Property Condition Assessment (PCA) is the standard pre-acquisition inspection for commercial real estate. It documents the physical condition of all major building systems — roof, HVAC, plumbing, electrical, structure, and site — and provides Estimated Probable Costs (EPCs) for repairs. These numbers feed directly into your investment analysis: a deal that appears profitable at face value may not pencil after accounting for $150,000 in deferred roofing and HVAC. TexaPlex Commercial Inspectors provides ASTM E2018 PCAs across Houston, Dallas-Fort Worth, Austin, San Antonio, and Corpus Christi.

TEXAS COMMERCIAL
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Debt & Coverage

Exit & IRR Breakdown

Texas Market Cap Rate Benchmarks

Scenario Comparison

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