Lots of people find commercial property an intriguing subject. This is likely due to the high potential profits on any one deal. Naturally the converse is also true. If you are not careful you could also lose that much.
You need some basic math for commercial property investing. This does not mean that you need to be able to add and subtract. (That is part of it, though!). You have to be able to interpret what different numbers mean.
Misread numbers have been the downfall of not a few investors. Avoid this by knowing the issues at stake.
* Net operating income determines value - Commercial property value is the net. Net is the amount that remains after you subtract the cost of operations from the amount of money that a building brings in. A building that brings in 5 million dollars sounds great. But if operations cost 4,999,999 then the net is only ten dollars. That building does not sound so good now, does it?
* Always be clear on the income versus expense - You will need hard numbers. You need every number or you do not have enough information. Projections cannot stand in for these numbers. You should not make assumptions either. Major losses could result. Knowing the values for certain lets you solidly back a deal.
* You will increase risk by making assumptions - Every assumption you make raises the risk factor. This is because assumptions are not guaranteed. Walk away from deals that look good because of assumptions. Some assumptions may be necessary though. You might elect to assume that you will keep a building’s tenants. But this is still a risk issue.
It is absolutely exciting to be involved in commercial property. It is a classic money maker. Just be realistic about commercial properties. You can increase your odds of success by using care when investing in commercial property.