Invest in Commercial Property
Are you wondering how to invest in commercial property? Are you ready to begin a path of commercial real estate investing? There’s a lot of room for success within the commercial real estate investment industry. For many investors, they aren’t sure where to begin. Follow this article to understand how to invest in commercial property. Stay tuned for more tips and steps to ensure success!
Know Your Terms
There are several investing terms that are used constantly in the commercial real estate investing world. When learning how to invest in commercial property, it’s crucial that you know and understand what these terms mean. These terms will be the basis of your investments. Although there are more than what we listed, this should give you a general understanding of the most used terms.
Vacancy Rate: The vacancy rate of a commercial real estate property is fairly self-explanatory, but very important. It is the number of vacancies divided by the total number of units. The lower the vacancy rate, the better.
Effective Gross Income (EGI): The EGI is your total income minus collection loss and vacancy rates.
Net Operating Income (NOI): The NOI of a commercial real estate investment deal is one of the most crucial numbers for any transaction. Essentially, the NOI is the amount that is left after you pay out all operating expenses of a commercial real estate property.
Capitalization Rate (Cap Rate): The cap rate of a property is the ratio of NOI to asset value, or sale price, of the property.
Cash-on-cash formula: This formula produces the annual return based on the purchase price made by the investor. Cash-on-cash return equals annual cash flow (before tax) divided by the total cash invested.
Do Your Due Diligence – Property and Market
Due diligence is a vital part of evaluating when understanding how to invest in a commercial property. This process should be taken very seriously in order to ensure success as an investor. Evaluating every aspect of the physical property is one part of the due diligence process. The other aspect is doing your due diligence on the market conditions surrounding the property. Just because a great property is successful in one area does not mean it will be in another. Be sure to investigate the areas trends, demographic, economy and other factors to ensure a profitable investment. Seeking professional help from an experienced commercial real estate broker is always the best decision to be sure you don’t overlook anything important.
Get an Expert Opinion
As stated, getting an expert’s opinion, especially if you’re just starting to learn how to invest in commercial property, is vital for success. In commercial real estate, there are so many different property types, zoning and property laws, rules and regulations that can vary. To be sure you are investing your hard-earned money wisely, consult with a commercial real estate broker. Experienced and knowledgeable brokers can help you with your investment strategy and success.
With these basic steps of how to invest in commercial property, you should be on your way to begin investing. Remember to know your terminology, conduct due diligence on the property and market and work with a broker. All of these steps will help you to strategize your investment successfully.
Percival Partners is one of Charlotte’s most recognized and respected commercial real estate firms with more than 50 years experience in the region. Our professional and experienced real estate Advisors are in the business of listening, understanding, and adding value. No matter the commercial property type you own or seek, you can count on the Percival Partners team to maximize your return and peace of mind. To reach us, you can call us at 704.632.1000 or follow us on Twitter at @SVNPercival, LinkedIn or Facebook.