When assessing commercial real estate property take a look at these key metrics.
Net Operating Income (NOI): This is found by calculating the property's first year gross operating income and subtracting the year's operating expenses. The goal for this metric is to have a positive value.
Cap Rate: The capitalization rate shows the value of income-producing properties - like office buildings and malls. The cap rate helps estimate the future profits made on the building.
Cash on Cash: The cash-on-cash formula used by investors compares the first-year performance of competing properties. This accounts for the fact that the investor didn't need to pay all in cash for the property, and also takes into account that the investor will not keep all of the NOI because some of that will go towards the mortgage on the building, according to Investopedia. The formula to determine Cash on Cash is the annual dollar income divided by the total dollar investment.
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