Commercial property investment analyser
What a commercial property earns, what it costs to buy and hold, how a loan changes the return, and what it might return over the years you own it.
Results
A worked example from the inputs shown. With JavaScript switched on, the results change as you change the inputs.
The loan falls due at the sale and is repaid from it.
Return on your equity, a year
7.2%
Over 10 years, with the loan, before tax
Net yield on the price
5.38%
Net operating income $80,760 a year
Cash return, first year
3.62%
$30,135 after the loan, on equity of $833k
Interest cover, first year
1.60x
Net operating income over interest
Equity needed
$832,537
Price, duty and costs of $1.6m, less the loan
Return without a loan, a year
7.0%
The property's own return, before tax
Profit on your equity
$686,844
Cash flow and sale proceeds less equity, over 10 years, before tax
At $1,500,000, net operating income of $80,760 is a net yield of 5.38%, or 5.12% on the price plus NSW transfer duty of $63,787 and $15,000 of other costs.
A loan of $750,000, 50.0% of the price, costs $50,625 in interest in the first year, a cover of 1.60x. That leaves $30,135 of cash, 3.62% on equity of $832,537.
Borrowing lifts the return on your equity from 7.0% to 7.2% a year, because the property returns more than the loan's 6.75%. The same leverage deepens losses if values fall.
Sold after 10 years at a capitalisation rate of 5.75%, the property would fetch about $1,887,560; after selling costs and repaying the $750,000 then owed, $1,099,809 comes back to you.
Show the figures
| Amount | |
|---|---|
| Gross rent | $105k |
| Vacancy | −$5.3k |
| Outgoings | −$10k |
| Management | −$4k |
| Maintenance | −$5k |
| Net operating income | $81k |
| Interest | −$51k |
| Cash flow | $30k |
Show the figures
| Net operating income | Cash after the loan | |
|---|---|---|
| Year 1 | $81k | $30k |
| Year 2 | $83k | $33k |
| Year 3 | $86k | $35k |
| Year 4 | $88k | $38k |
| Year 5 | $91k | $40k |
| Year 6 | $94k | $43k |
| Year 7 | $96k | $46k |
| Year 8 | $99k | $49k |
| Year 9 | $102k | $52k |
| Year 10 | $105k | $55k |
Show the figures
| Value | |
|---|---|
| Loan | $750k, 47% |
| Your equity | $833k, 53% |
Show the figures
| Capitalisation rate on sale | 1.0% | 2.0% | 3.0% | 4.0% | 5.0% |
|---|---|---|---|---|---|
| Cap rate 4.75% | 5.6% | 7.8% | 9.8% | 11.7% | 13.5% |
| Cap rate 5.25% | 4.0% | 6.3% | 8.4% | 10.4% | 12.2% |
| Cap rate 5.75% | 2.6% | 5.0% | 7.2% | 9.2% | 11.0% |
| Cap rate 6.25% | 1.1% | 3.7% | 6.0% | 8.0% | 10.0% |
| Cap rate 6.75% | −0.2% | 2.5% | 4.8% | 7.0% | 9.0% |
Scenarios
Keep the base case and try other assumptions beside it. Each scenario starts from the base case and keeps only the inputs you change in it.
The purchase
| Amount | |
|---|---|
| Purchase price | $1,500,000 |
| NSW transfer duty, general rates | $63,787 |
| Legal, due diligence and other costs | $15,000 |
| Loan establishment fee | $3,750 |
| Total cost | $1,582,537 |
| Less the loan | −$750,000 |
| Your equity | $832,537 |
Year by year10 years
| Year | Rent | Vacancy | Outgoings | Management | Maintenance | Net operating income | Capital works | Interest | Principal | Cash flow |
|---|---|---|---|---|---|---|---|---|---|---|
| 1 | $105,000 | $5,250 | $10,000 | $3,990 | $5,000 | $80,760 | $0 | $50,625 | $0 | $30,135 |
| 2 | $108,150 | $5,408 | $10,300 | $4,110 | $5,150 | $83,183 | $0 | $50,625 | $0 | $32,558 |
| 3 | $111,395 | $5,570 | $10,609 | $4,233 | $5,305 | $85,678 | $0 | $50,625 | $0 | $35,053 |
| 4 | $114,736 | $5,737 | $10,927 | $4,360 | $5,464 | $88,249 | $0 | $50,625 | $0 | $37,624 |
| 5 | $118,178 | $5,909 | $11,255 | $4,491 | $5,628 | $90,896 | $0 | $50,625 | $0 | $40,271 |
| 6 | $121,724 | $6,086 | $11,593 | $4,626 | $5,796 | $93,623 | $0 | $50,625 | $0 | $42,998 |
| 7 | $125,375 | $6,269 | $11,941 | $4,764 | $5,970 | $96,432 | $0 | $50,625 | $0 | $45,807 |
| 8 | $129,137 | $6,457 | $12,299 | $4,907 | $6,149 | $99,325 | $0 | $50,625 | $0 | $48,700 |
| 9 | $133,011 | $6,651 | $12,668 | $5,054 | $6,334 | $102,304 | $0 | $50,625 | $0 | $51,679 |
| 10 | $137,001 | $6,850 | $13,048 | $5,206 | $6,524 | $105,373 | $0 | $50,625 | $0 | $54,748 |
| Total | $925,823 | $506,250 | $419,573 |
The sale uses year 11's net operating income of $108,535.
If interest rates rise, first year
| Rate | Interest | Debt service | Interest cover | Debt service cover | Cash flow | Return on equity |
|---|---|---|---|---|---|---|
| As entered, 6.75% | $50,625 | $50,625 | 1.60x | 1.60x | $30,135 | 7.2% |
| +1 point, 7.75% | $58,125 | $58,125 | 1.39x | 1.39x | $22,635 | 6.4% |
| +2 points, 8.75% | $65,625 | $65,625 | 1.23x | 1.23x | $15,135 | 5.6% |
| +3 points, 9.75% | $73,125 | $73,125 | 1.10x | 1.10x | $7,635 | 4.8% |
Value today at other capitalisation rates
| Capitalisation rate | Value | Loan to value |
|---|---|---|
| −1 point, 4.38% | $1,842,153 | 40.7% |
| −0.5 points, 4.88% | $1,653,563 | 45.4% |
| As bought, 5.38% | $1,500,000 | 50.0% |
| +0.5 points, 5.88% | $1,372,536 | 54.6% |
| +1 point, 6.38% | $1,265,038 | 59.3% |
The first year's net operating income divided by each rate. Valuers also weigh leases, tenants, location and comparable sales.
The full schedule, repayment by repayment, is in the downloads.
Download
The inputs, results and schedules of the scenario on screen. Files are made in your browser; nothing is sent anywhere.
What it does
Commercial property is priced on its income. The analyser works from the rent to the net operating income an owner keeps after vacancy, outgoings, management and maintenance, and from that to the yields: on the price, and on the total cost with NSW transfer duty and other buying costs included.
It adds a loan, interest only or principal and interest, with its interest cover, its debt service cover and the cash left for the owner. Over a holding period, rent and costs grow at the rates you set and the property is sold at a capitalisation rate, which gives the return on your equity with the loan and the property's own return without it. Professional mode adds a capital works reserve, separate cost growth and scenario adjustments.
Understanding your results
- Net operating income
- Rent collected after vacancy, less the outgoings, management and maintenance the owner pays. It is what the property earns before the loan and before larger capital works.
- Yield and capitalisation rate
- Net operating income divided by the price. Valuers use the same ratio, the capitalisation rate, to turn income into value: at 5%, each dollar of income a year is worth $20. A higher capitalisation rate means a lower value, even when the rent has not changed.
- Interest cover
- Net operating income divided by the interest on the loan. Lenders often test it against a minimum, alongside the loan to value ratio.
- Borrowing and the return
- A loan raises the return on your equity only when the property returns more than the loan costs. When the interest rate is higher than that, each dollar borrowed earns less than it costs, and the loan lowers the return while adding risk. The analyser shows both returns so you can see which applies.
- Return on your equity
- The yearly rate that equates the equity you put in with the cash after the loan each year and the equity returned at the sale. The return without a loan does the same for the whole cost and the property's own cash flow.
The method
How this is calculated
Rent collected = rent × (1 − vacancy allowance)
Net operating income = rent collected − outgoings − management − maintenance
Net yield = net operating income ÷ price
Interest cover = net operating income ÷ interest
Debt service cover = net operating income ÷ (interest + principal)
Cash flow = net operating income − capital works − interest − principal
Equity = price + duty + other costs + loan fee − loan
Sale price = the next year's net operating income ÷ capitalisation rate on sale
Equity from the sale = sale price × (1 − selling costs) − loan then owed
NSW transfer duty uses the general rates for 2026-27 published by Revenue NSW: the duty at the start of the band plus a rate for each $100, or part, above it. On $1,500,000 that is $52,237 plus $5.50 for each $100 over $1,290,000, or $63,787. Premium property duty applies to residential land only and is not included. The rates and their source are listed in How the tools work.
The loan runs month by month and the yearly figures add twelve months. Rent grows at the rent growth rate; outgoings, maintenance and capital works at the cost growth rate; management stays a share of the rent collected. The return with the loan is the IRR of minus the equity, each year's cash flow and the equity from the sale; the return without it is the IRR of minus the price and buying costs, each year's net operating income less capital works, and the sale price after selling costs.
Assumptions and limitations
The defaults are an illustration: a $1.5 million property earning $105,000 of gross rent, with a $750,000 interest only loan at 6.75%, held for ten years and sold at a 5.75% capitalisation rate. They are our assumptions, not market yields or lending terms, which differ widely with the type of property, its location, its leases and its tenants.
Results are before income tax. The analyser does not model depreciation for tax, GST, the leases themselves (their terms, reviews, incentives and expiries) or a refinance. Duty is worked out for New South Wales only; for another state, enter the amount. It is general information, not financial, tax or legal advice, and not an offer of credit or credit assistance.
Learn more
- How much a lender will lend against a $1.5 million commercial property, in Part 4 of our lending series.
- The strategic use of debt: debt lifts the owners' return while an asset earns more than it costs, and cuts it faster when it does not.
- The stress tester, for cover and loan to value if rents fall, rates rise or values drop.
- The investment return analyser, for any other set of cash flows.