Hond Financial

Lots of people find commercial property an intriguing subject. This is likely a result of the huge potential profits from just one deal. Of course the converse may also happen. You could also lose that much without proper care.

You need some basic math for commercial property investing. Addition and subtraction is not all there is to it. (They are involved in the action though!) You need to have a basic understanding of what different values mean.

Misreading the numbers has been the downfall of many great investors. You can avoid this in most cases by knowing the issues at stake.

* You will determine value using net operating income - A commercial property is worth its net. You need to subtract the operations costs from the gross income to get the net. If a building generates 5 million dollars a year, that sounds great. However, if it costs 4,999,990 dollars a year to operate the building, you have a net value of ten dollars. Doesn’t sound so great now!

* Always be clear on the income versus expense - You will need hard numbers for this one. You need to have every number or you do not have enough information. Projections cannot stand in for these numbers. You also must not make assumptions. You could end up with major losses by doing so. You can more solidly back deals if you know the values for certain.

* You will increase risk by making assumptions - The risk in a deal rises with each assumption. This is because an assumption is not guaranteed to be true. Look away from the deals that rely on assumptions. Of course, some assumptions may be necessary. You might decide to allow the assumption that you will keep your building’s tenants. Of course this assumption is still a risk issue.

Being involved in commercial property is definitely exciting. It is one of the classic “millionaire-makers.” Just stay as realistic as you can about commercial properties. You can increase your odds of success by using care when investing in commercial property.

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