by In2assets  |   February 28, 2023

How to explain rental return - Commercial Property

Rental return on a commercial property refers to the income generated by renting out a commercial property, typically calculated as a percentage of the property's value or purchase price.

The rental income from a commercial property is calculated by subtracting the property expenses, such as maintenance costs, property taxes, and insurance, from the gross rental income received. The resulting figure represents the net operating income (NOI) of the property.

To calculate the rental return on a commercial property, you would divide the NOI by the property's value or purchase price, then multiply the result by 100 to express it as a percentage. For example, if a commercial property generates an NOI of R 1.000,000 per year and was purchased for R 10 million, the rental return would be 10% (R 1.000,000 / R 10,000,000 x 100).

The rental return on a commercial property is an important metric for investors explains Rainer Stenzhorn of In2assets, as it helps determine the property's potential profitability and assesses the risks associated with the investment. It is important to mention that rental returns can vary based on location, property type, market conditions, and other factors, so it's critical to conduct thorough research and analysis before investing in commercial real estate.