Commercial
real estate is much different from residential real estate. In fact, it is more
beneficial than a residential real estate. Keeping in mind the fact, the rules
and regulations are also different from that of residential real estate. Perhaps
this is the reason why commercial real estate terminologies are much different
from that of residential real estate.
Dean
Graziosi believes that in order to get most out of your field, it is very
necessary that you must know inner terminologies of that field. For example,
you cannot survive in America without knowing English. Similarly, you cannot
survive in commercial real estate without knowing terminologies used by inner
peoples of commercial real estate.
Dean
teaches his students long list of terminologies used in commercial
real estate as well as residential real estate. He says that although
the list is too long, you must learn at least a few of the basic terminologies
in order to enter to the field. Dean Graziosi is an expert realtor. He has an
experience of more than twenty years in the field of real estate. He started
his career as a novice, with no educational background in real estate and no
money to set a backup plan.
Dean
belonged to a poor family; his parents got divorce when Dean was just three
years old. He lived with his mother and led a very struggling teenage. At the
age of sixteen, he started his first business of auto parts. After successfully
performing his first real estate deal at the age of eighteen, he never looked
back. His successful career life is supported by a complete family life.
Dean
believes that one must never lose courage. Hard circumstances are just like a
dark night, there is a bright sunny morning waiting after every dark night. He
gives courage to other strugglers. He believes in hard work and self-determination.
According to Dean, there is no shortcut, you get it or you miss it.
Following
his footstep, let us have a look on basic terminologies used by insiders of
commercial real estate.
Net Operating Income:
·
It
is also used as NOI.
·
It
is value of the property.
·
The
Net Operating Income of commercial real estate is calculated by valuating
property's first year gross operating income and then subtracting operating
expenses for the first year.
·
In
order to have a positive property valuation, you must have positive NOI.
Cap Rate:
·
"Cap"
is the capitalization rate of any real estate property.
·
It
is used to calculate rate of income producing properties.
·
For
example, five unit apartment complex, commercial office building, smaller strip
malls are good example to get an idea of cap rate determination.
·
Cap
Rate is also used to calculate Net Present Value of the property's future net
profits or cash flows.
·
The
overall procedure is also known as Capitalization of earning.
Cash on Cash:
This
process is used by most of the professional commercial
realtors to evaluate first year performance of competing properties. Those
who usually rely on statistics to calculate value and profit generated by the
properties use it. Other characteristics of Cash on Cash are as follows:
·
The
owner does not need 100% cash to purchase the property.
·
The
owner will not take all of the NOI.
·
The
owner must pay mortgages from earned NOI.
·
In
order to uncover Cash on Cash, investor must determine amount required to
invest to purchase the property.
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