The real estate world is full of unique terms to describe various processes and occurrences in the field. In the world of commercial real estate, three terms stand out as prominent factors in discussion.
Many may have heard of capitalization rate or cap rate, which is used to determine the overall value of an income-producing property. In terms of commercial real estate, capitalization rates are used in reference to buildings such as apartment complexes and strip malls. Real estate agents generally use capitalization rates to estimate the net present value for future cash flow.
When the term net operating income or NOI is referenced, real estate agents are referring to an equation performed by determining what the commercial real estate property’s first year gross operating income was and subtracting the operating expenses needed for first year upkeep. Essentially, net operating income provides the investor with a ballpark estimate of how much the investor will take home with them from their property investment.
When comparing an investor’s property with first-year performance standards of other properties in the area, real estate agents many times use the term cash on cash. Through a formula, the real estate agent is able to see that in order to purchase the property, the investor did not require a full-cash investment.
The real estate agents at Shetland Properties are sure to help investors understand these concepts and receive the information they need to be successful in their future investments. Shetland Properties only offers cliental with leasing opportunities in the highest possible value to assure their investment is worth while and embraces the idea longevity.