Buying commercial real estate can be a rigorous, time-consuming and expensive process. However, we have provided some tips below to help make this process easier.
Get to Know the Lingo
The commercial real estate business has a language of its own. It’s important to understand common vocabulary terms so you don’t feel lost when trying to buy commercial real estate. Here are some common terms below:
• Loan-to-Value (LTV): A ratio of how much money you borrow from a lender vs. the total value of the property you want to purchase.
• Debt Service Coverage Ratio (DSC): The total operating income versus total debt.
• Capitalization Rate (Cap Rate): The property income divided by the property’s total value.
• Cash on Cash: Total annual income divided by amount invested. The amount invested is most commonly the down payment.
• Vacancy Rate: Properties percentage that are vacant.
• Ad Valorem: A tax rate based on the property’s assessed value.
Don’t Limit Yourself
Don’t limit your options by settling on one of the first properties you review. Take into consideration as many properties as you can. Make a list of what you do and don’t like about each property. The most important things to consider include pricing, location, property condition and permissible uses.
You have a unique situation and needs. The properties you consider need to be compatible with your price range, location, uses,and upfront investment.
To start exploring commercial real estate investment opportunities, visit the commercial real estate matchmaking platform BuyerVista.