Real Example: $2M Commercial Property - Full Financing Breakdown

Introduction: Why Real Numbers Matter

Most commercial mortgage guides give you theory. This article gives you the actual math. We are walking through a realistic $2M multi-unit retail/office property acquisition in Ontario - from down payment to monthly cash flow - under multiple financing scenarios.

Whether you are a first-time commercial buyer or expanding your portfolio, understanding the full cost picture is essential before making an offer. Use our commercial mortgage calculator to run your own scenarios alongside this example.

Source: Bank of Canada, 2024 - posted conventional mortgage rates and commercial lending benchmarks

The Property: What We Are Buying

Property Profile:

This is a stabilised, income-producing asset - the kind of property that institutional and private lenders both favour. The cap rate of 9.24% is realistic for secondary Ontario markets in 2025.

Source: CREA Commercial, 2024 - average cap rates for multi-unit commercial in Ontario secondary markets range 7–10%

Scenario 1: Conventional Commercial Mortgage (75% LTV)

Under a conventional (uninsured) commercial mortgage, most lenders require a minimum 25% down payment.

Financing Summary:

A DSCR of 1.61x is well above the typical lender minimum of 1.20–1.25x, so this deal qualifies comfortably with most commercial lenders.

Source: Bank of Canada, January 2025 - 5-year Government of Canada bond yield ~3.40%, typical commercial spread 200–250 bps

Cash-on-Cash Return:

After debt service, your annual pre-tax cash flow is $184,800 - $114,540 = $70,260. With $500,000 equity invested (plus approximately $45,000 in closing costs), your cash-on-cash return is:

$70,260 / $545,000 = 12.89%

That is a strong return for a stabilised commercial asset with professional tenants.

Scenario 2: CMHC-Insured Financing (Up to 85% LTV)

If the property has a residential component or qualifies under CMHC multi-family programs, you may access higher leverage. For properties with 5+ residential units, CMHC insured financing offers LTV up to 85% (or even 95% under MLI Select).

For this example, assume the building qualifies at 85% LTV:

The CMHC scenario delivers a dramatically higher cash-on-cash return (22.82% vs 12.89%) because you invest $200,000 less in equity and benefit from a lower rate plus extended amortisation. The insurance premium is financed into the mortgage.

Source: CMHC, 2024 - Multi-Unit Mortgage Insurance premium schedule and eligibility criteria

Learn more about purchasing financing options to understand which structure suits your situation.

DSCR Deep Dive: How Lenders Underwrite This Deal

Lenders do not take your NOI at face value. They apply adjustments - and then stress-test the rate. Here is how a typical lender would underwrite this property:

Even at the stress-test rate, the deal still passes the 1.20x DSCR minimum. But notice how much tighter it becomes - the lender NOI is $23,760 less than your actual NOI. This is why understanding how lenders qualify deals is critical before making an offer.

For more on how "accounting profit" differs from "lender NOI," read our article on the cash flow illusion.

Source: OSFI Guideline B-20, 2024 - stress test requirements for federally regulated lenders

Closing Costs Breakdown

Buyers often underestimate closing costs on a $2M commercial property. Here is a realistic breakdown for Ontario:

Note: Commercial property purchases in Ontario are also subject to HST on the purchase price ($260,000 on $2M), but if you are acquiring the property as a business or for rental purposes, you typically claim the HST back as an Input Tax Credit (ITC). Consult your accountant.

Source: Ontario Land Transfer Tax Act, 2024 - current rate schedule for commercial properties

Financing Scenario Comparison: Full Picture

Here is the complete comparison across three scenarios:

A private financing scenario makes sense when you need to close quickly, the property does not meet institutional criteria, or you plan to stabilise and refinance into a conventional mortgage within 12–24 months.

Key Takeaways

1. DSCR is king - lenders care about cash flow coverage, not your accounting profit.
2. CMHC insurance costs money but saves more - lower rates and longer amortisation boost returns significantly.
3. Budget 2.5–3% of purchase price for closing costs - environmental, legal, and appraisal fees add up.
4. Stress testing matters - even a deal with a 1.61x DSCR at contract rate tightens to 1.26x under stress test.
5. Cash-on-cash return varies dramatically by financing structure - the right mortgage strategy can double your returns.

Ready to run your own numbers? Use our commercial mortgage calculator or contact The Mortgage World to get a personalised financing comparison for your next acquisition.

References

1. Bank of Canada - Posted interest rates and bond yields: https://www.bankofcanada.ca/rates/
2. CMHC - Multi-Unit Mortgage Insurance: https://www.cmhc-schl.gc.ca/professionals/project-funding-and-mortgage-financing/mortgage-loan-insurance/multi-unit-insurance
3. OSFI - Guideline B-20 Residential Mortgage Underwriting Practices: https://www.osfi-bsif.gc.ca/en/guidance/guidance-library/residential-mortgage-underwriting-practices-and-procedures
4. Ontario Ministry of Finance - Land Transfer Tax: https://www.ontario.ca/document/land-transfer-tax
5. CREA - Commercial Property Data: https://www.crea.ca/