The Real Return After Debt and Operating Costs
A small commercial building โ a mixed-use retail block, a standalone office, or a small strip center โ attracts investors chasing both rental income and long-term appreciation. But because the purchase price is large, most buyers finance a big share of it, and property taxes, insurance, and maintenance on a whole building add up fast. The headline gross yield can look attractive while the after-debt, after-cost return tells a very different story. This calculator strips out interest and operating costs to show your actual annual return on equity.
How It's Calculated
| Item | Formula |
|---|---|
| Equity | Purchase price โ loan amount |
| Net Income | Annual rent โ loan interest โ operating costs |
| Gross Yield | Annual rent รท purchase price ร 100 |
| Return on Equity | Net income รท equity ร 100 |
When rental yield beats your loan rate, borrowing more can boost your return on equity โ but rate increases or vacancy can flip that leverage effect and push your equity return negative even if the building is fully occupied. This tool only accounts for rent, interest, and the operating costs you enter, so it's wise to add a cushion for closing costs and unexpected repairs and run a few different rent and vacancy scenarios before committing.
Frequently Asked Questions
It varies by market โ prime locations often show lower yields with more appreciation upside, secondary markets the reverse.
Property taxes, insurance, common-area maintenance, and leasing commissions are the biggest line items.
Financing reduces your equity investment, so if rental yield beats the loan rate, leverage lifts your equity return above gross yield.
โป This is a simplified estimate excluding closing costs and price appreciation.