Mathematics of Commercial Property
commercial property intrigues many people. This is probably thanks to the huge potential profits from any one deal. It is true that the converse can also happen. If you are not careful you could also lose that much.
You need some basic math tools to succeed with commercial property. This does not mean just addition and subtraction. (They are involved though!) You have to be able to interpret what different numbers mean.
Misreading the numbers has been the downfall of many great investors. Avoid this by knowing the issues at stake.
* You can determine value using net operating income - Commercial property value is the net. You get the net by subtracting the cost of operations from the money brought in. A building that brings in 5 million dollars sounds great. But you end up with a net of ten dollars if operations run 4,999,999. Doesn’t sound so great now!
* Always know income versus expense - You definitely need hard numbers for this one. You need to have every number or you do not have enough information. You cannot project these numbers. You also must not make assumptions. Major losses could result. You can solidly back deals with solid values.
* Assumptions increase your risk - You will raise the risk in a deal with every assumption. Assumptions cannot be guaranteed. You must resist the attraction of deals based on assumptions. Some assumptions may be necessary though. For example, you might assume that a building will keep tenants. This assumption still adds to the risk issue.
Commercial property investing is definitely very exciting. It is one of the classic “millionaire-makers.” However, you must be realistic about every commercial property you consider. You can increase your odds of success by using care when investing in commercial property.