What Every Real Estate Investor Should Know

Commercial Real Estate Formulas Every Investor Should Know   Commercial real estate involves formulas that differ from residential investments. Are you familiar with these key calculations?

Here’s a summary of some key formulas to remember when you’re investing in commercial real estate (and don’t forget to consult with real estate and financial experts for more advice).

Net Operating Income (NOI): This formula is used to determine the amount of income your property generates. It focuses on the real estate itself, not the financial situation of the prospective investor. To calculate the net operating income, subtract the operating expenses from the real estate revenue the property produces. Revenue includes all money generated from the property, not just leases. This could include parking and other facility fees.

Capitalization Rate: This is also known as the “cap rate.” Investors often use it to quickly determine how properties they own are performing financially or to assess the return on investment of properties they’d like to buy. It is calculated by dividing the net operating income by the property asset value. Cap rates are expressed as percentages.

  Cash-on-Cash: This is a rate of return often used to calculate the cash income earned in relation to the cash invested in the property. This is calculated by dividing the net income from a property for one year by the total cash invested into the property, expressed as a percentage. It takes into account debt financing but only considers income from one year.

Feel free to contact me for assistance with any potential investments. I’m happy to help you find a property that would be a solid investment for you.