commercial property is an extremely interesting subject. This is likely due to the high potential profits on any one deal. Of course the converse event could also occur. Without proper diligence you could lose that much.
You do need some basic math to invest in commercial property. Addition and subtraction are just part of it. (That is part of it, though!). You need to have a basic understanding of what different values mean.
Many investors have lost it all thanks to misreading the numbers. You can avoid their mistakes by knowing more about the issues at stake.
* • Value depends on net operating income - You will know the commercial property value if you know the net. You get the net by subtracting the cost of operations from the money brought in. If a building generates 5 million dollars a year, that sounds great. But operations costs of 4,999,999 leave a net value of ten dollars. Now the deal does not sound so great.
* Always be clear on the 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. Projections cannot stand in for these numbers. Nor can you make assumptions about them. Major losses could result. Being certain about values enables you to solidly back a deal.
* Increased risk is a result of assumptions - Every time you make an assumption you increase your risk in the deal. You cannot guarantee that an assumption is true. If a deal looks good based only on assumption, then walk away. It could be argued that some assumptions are necessary. For example, you might assume that a building will keep tenants. However, you still have to factor this assumption in as a risk issue.
Commercial property investing is definitely very exciting. Often it is thought of as a millionaire maker. But you have to be realistic about commercial properties. You can increase your odds of success by using care when investing in commercial property.
Gavin King is the Designated Broker of Realty In Idaho.
