Most of the return is in the exit, and it rests on two guesses
Forward NOI, capitalised at your exit cap, less selling costs and the loan balance. DealWise grows revenue and expenses independently to get there, because a single blended rate assumes something that is usually false.
One growth rate quietly assumes your margin never moves
Applying 3% to today's NOI is the standard shortcut, and it encodes an assumption nobody would defend out loud: that revenue and expenses rise at exactly the same speed for the whole hold.
- Revenue and expenses grow separatelyEach side compounds on its own path and NOI is what falls out. If expenses run ahead of rents, NOI grows slower than either — which a blended rate cannot express.
- The expense side is where the surprise livesA post-sale reassessment can move the tax line by itself, and insurance has been rising faster than rent in much of the country. Freezing expenses is the most common way a pro forma flatters itself.
- Then capitalise, then net outForward NOI at your exit cap is the sale price. Selling costs and the outstanding loan balance come off it, and what is left is what actually reaches you.
Total equity required
$6,200,000
Cash-on-cash (yr 1)
6.65%
Levered IRR
14.24%
Exit value
$21,940,000
Net operating income by hold year
The exit assumption deserves more suspicion than it usually gets
The rent roll is a set of facts. The hold is mostly arithmetic on those facts. Then the exit arrives and asks you to predict what somebody else will pay for the income several years from now.
It is the least knowable input and frequently the largest driver of the return. A deal where most of the profit lands at sale is a bet on the exit cap, whatever the rest of the model says.
So it is worth running the same deal at a flat exit cap — the rate you are buying at — and seeing whether it still clears your threshold. If it only works with compression, that is a real finding and it is better to have it now than at the refinance. The AI analysis raises it when the exit is carrying the deal.
The headline exit value is not what you get
Sale price is the beginning of the calculation, not the end. What matters for the return is what is left once the costs and the lender have been paid.
- Returns computed on net proceedsIRR and equity multiple run off what actually reaches you, including the loan payoff at whatever the balance has amortised down to.
- A hold past maturity is a refinanceIf the balloon lands before your sale, the model shows it rather than letting an unmodelled refinance sit inside the return.
Total equity required
$6,200,000
Cash-on-cash (yr 1)
6.65%
Levered IRR, flat exit cap
10.86%
Exit value, flat cap
$19,120,000
The same hold, exited at the cap rate it was bought at
Questions people ask
What is an exit cap rate?
The cap rate you assume a buyer will pay when you sell. Forward NOI divided by that rate is the sale price, so it is one of the two assumptions that decide most of the return — and unlike the rent roll it is a guess about a market years away rather than a fact about a building.
How does DealWise compute forward NOI?
By growing revenue and expenses independently across the hold and taking the NOI that results, rather than applying a single growth rate to today's NOI. Those are different calculations and they diverge quickly, because a blended rate quietly assumes your margin stays constant.
Why does growing them separately matter so much?
Because they do not grow together in reality. Insurance and taxes have been rising faster than rents across much of the country, and a reassessment after a sale can move the tax line on its own. If expenses grow faster than revenue, NOI grows slower than either — and a single blended rate cannot express that at all.
What comes off the sale price?
Selling costs and the outstanding loan balance. What is left is what actually reaches you, which is usually a good deal less than the headline exit value and is the figure the return should be computed on.
What if the hold runs past the loan maturity?
The model shows it. A five-year hold on a five-year loan contains a refinance nobody has modelled, and refinancing into a weaker rent roll at a higher rate is a different deal from the one on the page.
Where this goes next
Exit cap rate explained
What it is and how much of the return it decides.
Cash flow modeling
The hold this exit sits at the end of.
Debt modeling
The balance that comes off the sale price.
IRR calculator
What the timing of each dollar is worth. Free, no signup.
Value an income stream
Forward NOI at a cap rate you believe.
All capabilities
Everything else the product does.
Find out how much of your return is a guess.
Model the hold from the rent roll, then test the exit both ways — at the cap you hope for and the cap you are buying at. Free plan, no credit card.