Personal Assessment of Your Commercial Real Estate

Real Estate
Wondering how your commercial real estate investment portfolio is doing? Let's do a quick check!
Published on
July 16, 2024
Copy link
Introduction

Before investing in commercial real estate or even after you have had your investment property for some time, it is important to check on your investment’s return and expenses. This will help you keep track of every dollar involved in the investment, see if you have room to refinance and help you reach your goal! These metrics can be checked from the comfort of your home without the use of a professional.

NOI

NOI stands for net operating income. It's a measure of the profitability of your commercial property and is used as a factor in calculating the cap rate. The cap rate is a ratio that you can use to determine how much annual cash flow will be generated by your property, which can then be used to calculate its value.

The formula for calculating NOI is:

Gross income - operating expenses = net operating income

Capitalization Rate

Capitalization rate (cap rate) is the ratio of net operating income to property value. The capitalization rate is calculated by dividing the Net Operating Income (NOI) from a property by its market value, and then multiplying that number by 100.

The actual formula for calculating cap rate is:

CAP RATE = ([Annual NOI] / [Market Value]) * 100

Cash on Cash Return

Cash on cash return is the most important metric to evaluate when investing in real estate. The cash-on-cash return is calculated by dividing the net operating income (NOI) by the total investment, and it’s expressed as a percentage.

NOI = Net operating income; usually considered equivalent to earnings before depreciation, interest and taxes (EBITDA).

Cash Investment = Total purchase price for property less any seller concessions or closing costs paid by buyer such as title insurance, escrow fees and loan origination points

Conclusion

The commercial real estate market is a dynamic one, and there are many factors to consider when looking at potential investment opportunities. With this information in mind, you can make better decisions about your next purchase and become a better commercial real estate investor.


Get started today
Whether you're actively looking, or just researching, you can find out what you qualify for and get connected with a pro.
Apply Now
Create your Real Estate Dream Team
Our financial experts can help team you up with real estate expert. They'll be in it together, making sure you're well-funded and perfectly housed in this challenging market.
Get Started Now
Latest posts

Don't Stop Here

Check out some of these related articles.

Preapproval: Your Ticket to a Competitive Advantage in a Hot Real Estate Market

Gain a competitive advantage in a hot real estate market with mortgage preapproval. Understand what it is, how it differs from pre-qualification, and the process of getting preapproved. Discover the benefits of preapproval and real-life scenarios where it made a difference. Learn how to get preapproved, choose the right lender, and avoid common mistakes during the preapproval process. Don't miss out on the importance of preapproval in a competitive market. Consider preapproval today!
Read post

Staying Informed: Following Local News and Events Before Relocation

Thinking about relocating? Discover the importance of staying informed about local news and events before making your move. Learn how local news and events can impact your decision and influence the real estate market. Get tips on how to follow local news and keep track of local events. Explore a real-life case study of someone who benefited from staying informed. Don't miss out on the valuable insights local news and events can provide. Start your relocation journey by staying informed!
Read post

The Role of Real Estate Agents: Partnering for Success in Mortgage Deals

Partnering with a real estate agent is crucial for success in mortgage deals. This blog post explains the role of real estate agents in mortgage deals and how they serve as a link between buyers and sellers. It also highlights the benefits of partnering with real estate agents and explores the powerful partnership between real estate agents and mortgage lenders. Additionally, it provides tips for choosing the right real estate agent for your mortgage needs. Discover the importance of partnering with real estate agents for mortgage success.
Read post