The document outlines essential terms in commercial real estate that investors should understand, including net operating income, return on investment, capitalization rate, price per unit, and the importance of relationships in the industry. Net operating income is a key indicator of property value, while return on investment measures the money generated from the investment. Understanding these terms is crucial for making informed investment decisions in commercial real estate.

1. Frequently Used Terms in the
Commercial Real Estate

2. When you are planning to invest
in commercial real estate, then
you should first understand the
terms related to it.

3. Several terms are involved in
every commercial real estate
investments that are important
to be aware of.

4. You need to carefully understand
all the terms associated with the
commercial property that you are
looking to purchase.

5. Here are the frequently used
commercial real estate terms which
you need to understand before
taking any investment related
decisions.
 Net operating
income
 Return on
investment
 Capitalization rate
 Price per unit
 Relationships

6. Net operating
income

7. The first and most popular real
estate term is the net operating
income which is the main factor of
every commercial real estate deal.

8. The net operating income is
calculated by subtracting your
expenses from the gross rental
income of your commercial
property.

9. Here, the expenses do not include
the mortgage payments or
depreciation for calculating the net
operating income.

10. If the NOI increases, the property
value will increase as well and if the
NOI goes down, the property value
also goes down.

11. Return on
investment

12. Return on investment is another
important term in commercial real
estate investment because it refers
to the money coming out from your
investment property.

13. The ROI of your commercial real
estate is calculated by dividing your
annual cash flow with the down
payments.
Annual cash flow Down payments
Return on investment (ROI)

14. The time required for raising the
capital of your commercial real
estate property, determines how
fast is your money coming out of
the investment.

15. Capitalization
rate

16. If you look at the real estate
properties as a whole, then
capitalization rate is mostly used in
the commercial real estate
industries.

17. The capitalization rate is similar to
the net operating income and is
calculated by dividing it with the
sale price.

18. Thus, the capitalization rate is
generally used to measure the
performance of the building
without considering the mortgage
financing.

19. If you have already paid the whole
amount for your commercial
property, then the capitalization
rate defines the return on
investment of that property.

20. Price per unit

21. Before investing in commercial
properties, you need to determine
the worth of the property and what
to offer when you’re considering to
it.

22. Price per unit and the price per
square feet basically allow you to
calculate the price you are going to
pay for the whole commercial
property.

23. It is helpful for the investors to
gauge their offer prices as well as
protect them from their overpay
deals.

24. However, you can also use the
price per unit and price per square
foot to determine the value of
apartments, retail centers, office
buildings, etc.

25. Relationships

26. Relationship is probably the most
important term for the property in
the commercial real estate market
because it is a relationship based
business.

27. It will help you to convince the
property seller or the brokers to
work with you instead of other and
send you their off-market deals.

28. By maintaining a good relationship
with the seller, you will get the best
deals for your commercial real
estate investments.

29. In this way, you can work with the
seller by understanding their needs
and property selling motives.

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