Investing in a commercial property can be a great opportunity to add to your assets and increase your income. Commercial real estate is an investment that does not depreciate, so the rate of return on your investment often makes it well worth the expense. But, it can be hard to discern which property will maximize your potential earnings, so let’s dive into how to properly evaluate a commercial real estate investment so that you can get the most out of your investment.
Calculate the property’s income, price, and value
First, estimate the gross scheduled income (GSI) by adding together the total rent that can be expected from the entire space. Then, subtract a 5% vacancy from the GSI since the chances are that not all of your units will remain fully occupied throughout the year. The resulting amount is the effective gross income (EGI). Next, calculate the net operating income (NOI) by subtracting estimated operating expenses from the EGI. Now, if this is a positive number, that is the amount of profit you will make each year. Compare this number to the asking price from the seller and determine if this is a reasonable investment to make.
Once you have calculated the potential income, price, and value, you’ll want to evaluate your own budget and financial projections to determine if this is a worthwhile investment. Look through the property and note any damages or repairs that will need to be made in the near future, as this will contribute to the overall expenses. Also, identify the possible uses of this property, and weigh out if these proposed uses will have the proper return on investment that you need to purchase the property.
Consult with Professionals
Making the decision to invest in commercial real estate can be a daunting experience, which is why it’s crucial to consult with professionals in the field. At MD Real Estate, we have years of experience in the field to help you weigh your options for any commercial real estate property. Visit our homepage for more information at mdrealestateservices.com.
