To be a player in commercial real estate, learn to think like a professional. For example, know that commercial property is valued differently than residential property. Income on commercial real estate is directly related to its usable square footage.
Map Out a Plan of Action
Setting parameters is a top priority in a commercial real estate deal get a sense of how much you will pay over the life of the mortgage.
Learn to Recognize a Good Deal
The top real estate pros know a good deal when they see one. What’s their secret? First, they have an exit strategy – the best deals are the ones where you know you can walk away from. It helps to have a sharp,
Key Commercial Real Estate Metrics
The common key metrics to use for when assessing real estate include:
Net Operating Income (NOI)
The NOI of a commercial real estate property is calculated by evaluating the property’s first year gross operating income and then subtracting the operating expenses for the first year. You want to have positive NOI.
A real estate property’s “cap” – or capitalization – rate, is used to calculate the value of income producing properties. For example, an apartment complex of five units or more, commercial office buildings, and smaller strip malls are all good candidates for a cap rate determination. Cap rates are used to estimate the net present value of future profits or cash flow; the process is also called capitalization of earnings.
Cash on Cash
Commercial real estate investors who rely on financing to purchase their properties often adhere to the cash-on-cash formula to compare the first-year performance of competing properties.
Look for Motivated Sellers
Like any business, customers drive real estate. Your job is to find them – specifically those who are ready and eager to sell below market value.
Approach to Evaluate Properties
Be adaptable when searching for great deals. Use the internet, read the classified ads and hire bird dogs to find you the best properties.