New Energy Articles Blog

Sep

2009

Commercial Property Mathematics 101

Author: admin

commercial property is an extremely interesting subject. This is likely because just one deal can net hundreds of thousands of dollars. It is true that the converse can also happen. Without proper diligence you could lose that much.

You need some basic math for commercial property investing. This does not mean that you need to be able to add and subtract. (They will be part of it though!) You need to have a basic understanding of what different values mean.

Not a few investors have met their downfall because of misread numbers. Avoid this by being sure that you know the issues at stake.

* Net operating income determines value - A commercial property is worth its net. You get the net by subtracting the cost of operations from the money brought in. A building that grosses 5 million dollars might sound pretty good. But operations costs of 4,999,999 leave a net value of ten dollars. Doesn’t sound so great now!

* Watch your income versus expense - You need hard numbers in this case. If you do not have every number that factors into these two issues, then you do not have the information you need. These numbers are unacceptable as projections. They should not be assumptions either. The wrong projection or assumption could lead to major losses. You will be able to solidly back a deal if you know values for sure.

* You raise your risk with every assumption - Each assumption increases the risk in a deal You will never be able to be confident that an assumption is true. Look away from the deals that rely on assumptions. You could argue that some assumptions are necessary. You could determine that the assumption that you will keep a building’s tenants is allowable. However, you still have to factor this assumption in as a risk issue.

Being involved in commercial property is definitely exciting. Often it is thought of as a millionaire maker. But you have to be realistic about commercial properties. Investing with care will increase your chances of success with commercial property.