Commercial Property Yield Calculator

Depends on type and class. 2026 ranges: office class A 7.5-9% (decompressed post-2020), industrial 5.5-7% (e-commerce-tightened), multifamily class A 4.5-5.5%, retail strip 6-8%, single-tenant NNN 5-7%. Lower cap rate = higher quality / lower expected return. Above market range either represents value or hidden problems.

Debt Service Coverage Ratio = NOI ÷ Annual Debt Service. So a property with $100K NOI and $80K mortgage payments has 1.25 DSCR. Most commercial lenders require 1.20-1.35× minimum. Below 1.0 means the property doesn't cover its mortgage — lender will reject. Run stress test (5% rent drop + 10% vacancy increase) to verify resilience.

Hybrid work post-COVID has pushed national office vacancy to ~20%+ (CBRE Q1 2026), the highest since data tracking began. Buyers demand higher cap rates to compensate for elevated risk. Class A trophy buildings still 7.5-9%; Class B/C at 9-12%+ with many sales below 50% of pre-2020 value. Many properties being converted to multifamily.

Gross potential rent = total possible rent at 100% occupancy. Effective rent = gross minus vacancy loss minus collection loss. Multifamily typical: 5-10% vacancy in stable markets, 15%+ during lease-up or distressed periods. Use effective rent (not gross) to calculate NOI and cap rate.

Section 1031 of IRC allows tax-deferred swap of like-kind investment property. Sell commercial property A, identify B within 45 days, close within 180 days. Use Qualified Intermediary to hold proceeds. Defers all capital gains tax until eventual sale. Many investors do continuous 1031s ("swap till you drop") with step-up in basis at death wiping out gains entirely.

Commercial loans: 5-25 year terms (vs 30-year residential), often balloon at year 5-10 requiring refinance, recourse vs non-recourse varies, 65-75% LTV typical (vs 80-95% residential), DSCR-based underwriting. Higher rates (typically 0.5-1.5% above 30-year fixed mortgage) and faster close (45-60 days). SBA 7(a) and 504 programs for owner-occupied.

OE ÷ Effective Gross Income. Multifamily class A: 35-40%. Class B/C: 45-55%. Office: 35-50%. Industrial: 20-30% (low because tenants pay most expenses NNN). Retail NNN single-tenant: 0-5% (tenant pays everything). Higher OE = lower NOI and cap rate. Track operating expenses carefully — owner mistakes here destroy returns.

Quick screening: GRM (Gross Rent Multiplier = price ÷ annual gross rent). Lower GRM = better deal. Multifamily typical 8-12; commercial 6-10. Then verify cap rate matches market range. Then verify DSCR > 1.25 with stress test. If all three pass, do full underwriting. If any fails, walk. Don't fall in love with a property; let the numbers speak.