Fictional Illustration
How an eight-unit neighbourhood retail plaza is evaluated
A worked example showing how commercial numbers are assessed before an offer. This is a teaching illustration only. It is not an available property, not a financing quote, and not a projected return.
Capital Required at Purchase
Purchase price$4,000,000
Assumed down payment$1,400,000
Mortgage amount$2,600,000
Purchase costs and due diligence$100,000
Initial capital and leasing reserve$150,000
Total Initial Cash Required$1,650,000
Annual Income
Scheduled base rent$440,000
Tenant expense recoveries$120,000
Vacancy and collection allowance−$28,000
Effective Income$532,000
Annual Operating Expenses
Property taxes−$65,000
Insurance−$18,000
Maintenance, snow removal, landscaping−$32,000
Common-area utilities−$12,000
Management and administration−$25,000
Net Operating Income Before Financing$380,000
Financing and Reserves
Illustrative mortgage payments−$228,000
Capital and leasing reserve contribution−$30,000
Estimated Annual Cash Flow Before Tax$122,000
Approximately $10,167 per month
7.4%
Illustrative
Cash-on-Cash
1.67×
Debt-Service
Coverage
$122K
Annual Cash Flow
Before Tax
If conditions are less favourable
Effective income falls 10 percent$68,800
Mortgage payments rise 15 percent$87,800
Both happen together$34,600
Important
This is a fictional illustration prepared to show how a commercial property is analysed. It is not an available property, not a financing quote, and not an expected or promised return.
The figures assume a fully leased eight-unit plaza with tenants contributing to recoverable operating costs, a vacancy and collection allowance of roughly five percent of gross income, and mortgage payments based on an assumed rate and amortisation that are not quoted here and would differ from any real offer.
Actual results depend on the specific property, its leases and tenant covenants, the condition of the building, prevailing interest rates at the time of financing, property taxes as assessed, and market conditions. Capitalisation rate, cash-on-cash return and debt-service coverage are shown as calculated from the figures above and are not benchmarks or targets.
Nothing here is financial, tax, legal or investment advice. Any real purchase should be reviewed with your own accountant, lawyer and mortgage professional.
