Big Money In Commercial Real Estate

Commercial real estate can be a good investment for some investors, depending on their goals and risk tolerance. Commercial properties tend to offer higher rental yields and the potential for long-term capital appreciation, making them attractive to investors looking for steady income and the potential for growth. Additionally, commercial real estate can provide a hedge against inflation, as the value of the property is typically tied to the value of the underlying land, which tends to increase over time. However, commercial real estate also carries some risks, including the potential for lower liquidity and higher volatility than other types of investments, so it's important for investors to carefully consider their own goals and circumstances before deciding whether commercial real estate is a good fit for them.

How you determine the value and return you will make on a commercial property is measured by something call a CAP Rate, the full term is called a capitalization rate. A good capitalization rate for a commercial property can vary depending on a number of factors, including the location of the property, the condition of the property, and the current market conditions. In general, a capitalization rate of around 6% to 8% or even as high as 10% is considered to be a good range for a commercial property. However, it's important to keep in mind that the right capitalization rate for a particular property will depend on its unique characteristics and market conditions.

To calculate the cap rate for a commercial property, you need to divide the property's net operating income by its current market value. For example, if a property has a net operating income of $100,000 per year and is currently valued at $1 million, the cap rate would be calculated as follows: cap rate = $100,000 / $1,000,000 = 0.10, or 10%.

Operating income, also known as earnings before interest and taxes (EBIT), is a company's/property's income after subtracting operating expenses such as wages, depreciation, and cost of goods sold, but before deducting interest and taxes. In other words, operating income is a measure of a company's profitability or real estate investment, from its core business operations, before considering the impact of financing and tax decisions. This measure is often used to evaluate the performance of a company or a particular business unit or property.

Commercial Real Estate is a very different world from the everyday residential real estate most investors are familiar with. Is this interesting to you? It can be HIGHLY profitable, if you would like to discuss opportunities in the commercial real estate world please message me, text of call 912-844-9000. Happy Investing!