4 Terms To Fully Understand If You're Investing In Commercial Real Estate

Posted on: 15 June 2020

Whether you are buying commercial real estate specifically for the purpose to embellish and resale or you are looking to invest in properties you can lease to prospective business owners, you must be an educated buyer. Part of being an educated buyer is getting familiar with some of the common terms used in commercial real estate listings and transactions. Here are a few of the important terms to get familiar with as you set out on your business venture.  

1. Net Operating Income (NOI)

If you see a listing that gives you an NOI, what you are looking at is the potential income you could garner from leasing out the property once expenses have been deducted. Of course, there are a lot of variables that can affect how much you can lease a property for, but the reason for giving an NOI is to give you an idea of what the property could yield after your investment. The NOI is figured using current market rates for similar properties. Therefore, this number is not definitive, but it can be a good estimate to consider as you look at different types of properties. 

2. Common Area Maintenance (CAM)

CAM is considered the general cost of maintenance of a commercial property. If you plan to lease out the property as an investor, you will be solely responsible for the maintenance of the property financially, which means the CAM is ever-important to know. For example, a property that has a high CAM may not be the most logical investment if you are looking for passive income. CAM can be determined using several ideas, such as where the property is located, what elements a structure has inside, and even the landscaping. 

3. Commercial Classification 

Just as it is with residential properties, commercial properties can have different classifications. These categorical classifications can tell you a lot about a potential investment property that you need to know in order to make a logical decision as you move forward. For example, a class A business property is generally a relatively new building in a good location, and it is usually a property that is easily maintained and has a low CAM. On the other hand, a class C property will be older, may not be in a good location, and could potentially need some work. Therefore, if you see a commercial classification of A or C, you already know a lot about the condition of the property before you even look at it. 

For help looking for commercial real estate in your area, contact a real estate agent near you.