Important Commercial Real Estate Terms
harkins / November 9, 2020
The commercial real estate market is brimming with complex terminology. For many, real estate terms can be confusing and can make it challenging to navigate commercial property for sale. If you are searching for property in the Sanford or Lake Mary area, here are some common commercial real estate terms you may come across.
1. Net Operating Income
Net operating income (NOI) is used to determine how profitable a real estate investment may be for generating income. NOI is a pre-tax number that can help you determine if an investment is sound before you buy commercial real estate.
2. Capitalization Rate
Also known as CAP rate, this term refers to the rate used to evaluate a real estate investment. To determine the capitalization rate, you must divide the net operating income by the property’s sales price. This will tell you the return rate on the commercial real estate investment.
3. Debt Coverage Ratio
Debt coverage ratio (DCR) is a term lenders use to describe the amount of cash flow that is available to pay a commercial mortgage. The formula for calculating DCR is NOI divided by your annual debt.
4. Usable Square Footage
The usable square footage of commercial buildings for sale refers to the amount of space that is actually available for use by the owners or tenants. Some space in a real estate building may not be usable. These are areas such as exit hallways, bathrooms, or stairways.
5. Building Classification
Commercial real estate buildings are generally separated into three main categories of building classifications. Class A buildings are the newest and of the highest quality. Class B buildings are older but still in good condition. Lastly, Class C buildings are the oldest and require the most updating. Building class generally represents the condition of a commercial property and indicates quality of location and amenities. Typically, the better the classification, the more desirable the property,
Contact Harkins Commercial Real Estate
Looking to sell or buy commercial property in the Sanford, Lake Mary area? Reach out to the commercial real estate professionals at Harkins today.
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