How Leverage Changes Industrial Property Returns
Light industrial and flex space โ small warehouses, workshops, and mixed office-warehouse units โ are popular with investors because lenders often offer solid loan-to-value ratios and demand tends to hold up even in soft office markets. The key question is whether the rental yield beats the loan rate. Finance a large share of the purchase and, as long as rent outpaces interest, the same net income divided by a smaller equity stake produces a noticeably higher cash-on-cash return. This calculator shows both the unleveraged gross yield and the leveraged cash-on-cash return side by side.
How It's Calculated
| Item | Formula |
|---|---|
| Equity | Purchase price โ loan amount |
| Annual Net Income | Annual rent โ annual loan interest |
| Gross Yield | Annual rent รท purchase price ร 100 |
| Cash-on-Cash Return | Annual net income รท equity ร 100 |
Leverage cuts both ways, though. If rates climb or the space sits vacant, interest can outpace rent and turn your cash-on-cash return negative even while the property itself performs fine. This tool only factors in rent and interest, so real-world returns will be lower once you account for vacancy, property taxes, insurance, and maintenance โ build those into your own underwriting before committing capital.
Frequently Asked Questions
Gross yield is rent over price; cash-on-cash return is net income over the equity you actually invested.
Only when rental yield beats the loan rate โ rate hikes or vacancy can flip the effect negative.
No โ only rent and interest. Factor in vacancy, taxes, insurance, and maintenance separately.
โป This is a simplified estimate excluding vacancy, taxes, and operating costs.