The basic realty terms are understood by most;
but here we have added some commercial real estate definitions to help you broaden your property investment knowledge.
Property values are determined by asset classifications: A, B, C or D. The market value determines the property class, A being the most in-demand. There are advantages to investing in all 4 types of property classes. Contact us to find out more.
The net operating income (NOI) divided by an income property’s current market value.
Cap Rate = Net Operating Income / Asset Market Value.
The ratio between an asset’s annual cash flow in relation to the commercial property’s down payment.
Cash on Cash Return = Annual Pre-Tax Cash Flow / Total Cash Invested.
The ratio of an investment property’s NOI with its impending debt service. Used to determine solvency.
DCR = Net Operating Income / Total Debt Service.
Percentage an asset’s sale price or value is attributed to financing.
Loan to Value Ratio = Mortgage Amount / Appraised Asset Value.
A fixed-rate Mortgage is a mortgage loan where the interest rate remains the same throughout the term of the loan, as opposed to a variable-rate Mortgage where the interest rate may adjust or "float".
Annual income from an income property, after accounting for property expenses.
NOI = (Rental Income + Other Income – Vacancy & Credit Losses) – Operating Expenses.
The initial amount paid for an asset in cash.
The net market value of a property, or, the difference between the property’s fair market value and the outstanding balance of all liens on the property.
A right, or a "bundle" of rights that someone has in, or with respect to a parcel of land.
Simply put, the calculated benefit of an investment (or the return), divided by its cost.
ROI = (Current Asset Value – Cost of Investment) / Cost of Investment.