Price/Sq-Ft + Cap Rate: A 5-Minute Analysis Method

In today’s fast paced commercial real estate market, hesitation can cost you the deal of a lifetime. The most profitable opportunities often disappear before slow moving investors even finish their spreadsheets.

When I first entered the industry, I’d spend weeks dissecting every number and combing through endless property details. Then I heard about the 5-minute commercial property analysis, a simple, repeatable method using price per square foot and cap rate to filter opportunities fast. This framework allows me, and my clients at Reach Commercial Real Estate, to decide within minutes whether a deal is worth deeper investigation, without sacrificing accuracy.

Step 1: Calculate Price Per Square Foot

The first and fastest number I calculate is Price Per Square Foot (PPSF).The formula is simple:

Example:

• Purchase Price: $1,000,000

• Renovation Costs: $100,000

• Closing Costs: $50,000

• Building Size: 10,000 sq ft

PPSF = ($1,000,000 + $100,000 + $50,000) ÷ 10,000 = $115 per sq ft

This single number lets you instantly compare the property to market averages and competing opportunities. If the PPSF is significantly higher than similar properties in the area, the deal may not make financial sense, no matter how attractive the marketing brochure looks.

Step 2: The Cap Rate Reality Check

Once you have the PPSF, it’s time for the Cap Rate test.

Cap Rate Formula:

Required Rent per Sq Ft = PPSF × Target Cap Rate. I use a 12% baseline cap rate for my initial filter. If the PPSF is $115, I need the property to generate:$115 × 0.12 = $13.80 per sq ft annually in rent. If that rent figure feels unrealistic for the market, the deal gets crossed off my list immediately.

Step 3: Market Rent Validation

Now we compare our required rent per sq ft to actual market lease rates for comparable properties in the same area. If market rates are equal to or higher than your required number, the deal stays in play. If they’re lower, walk away. This is where discipline saves investors from bad purchases. You can’t force tenants to pay above-market rents, and hoping for market shifts is a losing strategy.

Step 4: The Supporting Metrics

If a property passes the PPSF and Cap Rate tests, I glance at a few other numbers before committing to deeper due diligence:

• Net Operating Income (NOI): Actual cash flow after operating expenses, before debt service.

• Debt Service Coverage Ratio (DSCR): Lenders typically require 1.25+, meaning the property generates 25% more income than needed for loan payments.

• Cash-on-Cash Return: How much actual cash comes back for every dollar invested.

• Vacancy Rates: High vacancies can devastate your projections, even if PPSF and Cap Rate look good.

Red Flags That End the Conversation

Over the years, I’ve learned to stop cold if:

• Market rents don’t meet the required threshold.

• Vacancy rates are high or the area is oversupplied.

• No reliable comparable sales or lease data exists—indicating an unstable or thin market.

These factors kill deals faster than any spreadsheet ever could.

Why This Method Works

This framework isn’t just fast, it’s consistent. While other investors are still gathering documents, I’ve already moved on from bad deals or secured the good ones. The method removes emotional bias and keeps the focus on hard numbers. In competitive markets like Florida, speed + discipline is a huge advantage.

From Quick Screen to Full Due Diligence

If a property passes this 5-minute filter, that’s when we roll up our sleeves:

• Full financial modeling

• Property inspections

• Environmental and zoning reviews

• Legal document analysis

The difference is, we only invest that time and money into properties with a realistic shot at profitability.

Basically...

The Price/Sq-Ft + Cap Rate approach has transformed how I—and my clients—evaluate commercial properties. It’s not about skipping due diligence; it’s about focusing energy where it matters most. In a market that rewards fast, smart decisions, this method helps you act with confidence—and win deals before your competitors even finish their analysis.

Written by Cassandra Hartford, Owner of Reach Commercial Real Estate. Helping investors identify profitable opportunities and avoid costly mistakes.