Commercial Real Estate Jargon Every Investor Should Know
If you want to diversify your investment portfolio while increasing the return on your investment, then you should consider investing in commercial real estate. It’s an attractive market where the initial investment is relatively higher but the reduced risk of losses makes up for the additional costs.
But before you think of buying any commercial property, you should carry out some research about the jargon used by the professionals. These are the terms commonly used by realtors and investors. If you aren’t aware of these words, the conversation with the professionals can become overwhelming for you. You can contact Stamford Capital Investments to learn more about the real estate investment.
In commercial real estate market, you’re likely to come across the following terms:
Vacancy Rate – Vacancy rate is the ratio between the number of vacant units with the total number of units in a commercial building
Cap Rate – Also referred to as capitalisation rate, it’s the overall performance of your property without considering the mortgage loan. It can be calculated by dividing the net operating income with the sales price
Appraised Value – It’s the market value of your property that is estimated by a professional appraiser
Return on Investment – ROI is the efficiency of any investment and can be calculated by dividing the benefit of an investment with its initial cost
Common Area Maintenance – Aside from the pre-specified rent, tenants are also obliged to pay for the maintenance of the common areas in the property such as outdoor lights, snow removal, and cleaning shared parking space
Classes – On the basis of the condition and amenities, building are classified as A, B, C, and D. A class buildings are relatively newer buildings with various amenities and the class decreases as the building gets older
Tenant Improvement Allowance – TI refers to the modifications made in the property by the owner in order to accommodate the needs of the tenants. These alterations are listed in the lease agreement
Auction – Properties are often sold in auctions. Multiple bidders can take part in the auction and the property is sold to the highest bidder
Gross Income – Gross income is the total income from a single property including the rent from the tenants, income from the amenities, and late charges
Operating Expenses – Operating expense is the amount you annually spend on a property for its maintenance as well as to pay property taxes, utility bills, and landscaping services
Net Operating Income – NOI is the income you earn from a property after paying the operating expenses
Negative Equity – It’s when the amount of mortgage loan exceeds the current market value of your property
Repossession – If the loan borrower can’t clear the debt, the lender can sell off the property to recover the loan amount
Now that you know about the jargon commonly used in the real estate market, it’ll be easier for you to collect information about the local real estate market.