Commercial Property

Commercial property is real estate used for business purposes, including office, retail, industrial and apartment buildings of five or more units. Cash on cash return is calculated the same way on commercial deals as on a single-family rental, though the loans and expenses behind it differ.

Commercial loans often carry shorter terms, balloon payments and prepayment penalties, and lenders size them by DSCR as well as loan-to-value. Those terms change the debt service line, and with it the cash flow in the numerator.

Leases can shift expenses too. Under a net lease the tenant pays some or all of the taxes, insurance and maintenance, so the owner's NOI is steadier. Commercial investors still quote cash on cash return for year one, then lean on IRR because lease rollovers make later years harder to project.

Further reading: Commercial Property on Wikipedia.