How to Calculate ROI on Mixed-Use Properties
- Nate Jones, CPCU, ARM, CLCS, AU
- Oct 13
- 2 min read
Mixed-use properties—those that combine residential, commercial, and sometimes retail spaces—are increasingly popular among real estate investors. They offer multiple income streams and long-term value, but calculating return on investment (ROI) can be more complex than with single-use properties. In this blog, Wexford Insurance explains how to calculate ROI on mixed-use buildings and how to protect your investment with the right insurance coverage.
What Is ROI in Real Estate?
ROI, or Return on Investment, is a key metric used to evaluate the profitability of a real estate investment. It measures how much income a property generates relative to the total amount invested. For mixed-use properties, ROI helps investors understand how well the property is performing across its different components—residential, retail, and office.
Step-by-Step: How to Calculate ROI on Mixed-Use Properties
1. Calculate Net Operating Income (NOI)
NOI is the total income generated from the property minus operating expenses (excluding mortgage payments).
Formula: NOI = Gross Rental Income – Operating Expenses
Include all income from residential and commercial tenants, and subtract expenses like property management, maintenance, utilities, taxes, and insurance.
2. Determine Total Investment
This includes the purchase price, closing costs, renovation expenses, and any other upfront capital.
Example:
Purchase Price: $1,000,000
Renovations: $100,000
Closing Costs: $25,000
Total Investment = $1,125,000
3. Calculate ROI
Formula: ROI = (NOI ÷ Total Investment) × 100
Example: If your NOI is $90,000 annually: ROI = ($90,000 ÷ $1,125,000) × 100 = 8%
This means your investment yields an 8% annual return before financing costs.
Other Metrics to Consider
Cap Rate: Cap Rate = NOI ÷ Property Value
Useful for comparing properties regardless of financing.
Cash-on-Cash Return: Annual Pre-Tax Cash Flow ÷ Total Cash Invested
Focuses on actual cash invested vs. annual cash flow.
Internal Rate of Return (IRR): A more advanced metric that accounts for the time value of money over the investment’s life.
Factors That Influence ROI
Tenant Mix: A strong mix of commercial and residential tenants can stabilize income.
Location: Proximity to transit, schools, and business hubs increases demand.
Vacancy Rates: Lower vacancy means higher consistent income.
Zoning and Regulations: Local laws can impact usage and profitability.
Property Management: Efficient operations reduce expenses and improve tenant satisfaction.
Protecting Your Investment with Wexford Insurance
Calculating ROI is only part of the equation. Protecting your investment is just as important. At Wexford Insurance, we specialize in commercial property insurance for mixed-use buildings. Our policies cover:
Loss of rental income
Equipment breakdown
Flood and windstorm coverage (optional)
We understand the unique risks of mixed-use developments and tailor coverage to your building’s specific needs.
Final Thoughts
Mixed-use properties offer excellent ROI potential when managed and insured properly. By understanding how to calculate returns and mitigate risks, investors can make smarter decisions and build long-term wealth.
Contact Wexford Insurance today to get a customized quote and protect your mixed-use investment with confidence.