Commercial properties encompass a wide variety of properties, including offices, retail businesses, and even food service businesses. These kinds of properties are vastly different from residential real estate, even though they both involve investing in real estate. As a real estate investor who is planning to invest in commercial properties, you may want to look into these key concepts of commercial real estate investment. If you know these concepts and terms, you will better understand what it means to invest in commercial properties. If you want to be a successful property investor, who specializes in commercial properties, then you had better get familiar with these terms.
Cash on Cash is a formula that most commercial property investors will use to determine whether or not they have had a successful first year with their new commercial property. Cash on cash is calculated through the initial investment that the investor puts into their commercial property. This is because most investors do not use their money to invest in a commercial property. How to buy an investment property in Australia you can visit How To Property. Instead, they borrow it. So it is important to make sure that your cash on cash outcome is good because if it will signal a favorable return on your borrowed money.
Net operating income is what is used to refer to whether or not the overall running of your commercial property has been profitable or not. Usually, the net operating income is calculated on a yearly basis. To calculate it, commercial property investors simply take their gross operating income and then deduct that by how much they spent on operating their commercial property. It is usually important to have a positive net operating income because if it comes out as a negative amount it will signal that you are operating your commercial property at a loss.
The capitalization rate is another formula that is used to calculate the potential capital earnings from investing in a new property. Each property will have a unique capitalization rate, based on the fact that each property has different rent prices, demand, and availability of tenants. The capitalization rate is used to calculate the future earnings that can be gained from a specific property.
As you can guess, there is a lot of specialized formulas you will need to use if you want to go into commercial property investment. You do not have to be a specialized investor to do these calculations, just read and learn about them to do better in commercial property investment.