What is the Time Value of Money?
Imagine for a moment that you have a very generous friend. One day, this friend comes to you and tells you that it’s been a successful year and he or she wants to give you some money. The friend offers two choices: you can have $5,000 today, or you can have $5,000 in two years. […]
Using the Income Approach to Value Commercial Real Estate
Broadly, there are three methodologies used to value a commercial real estate asset: the cost approach, the sales comparison approach, and the income approach. Each has its own strengths and weaknesses. The purpose of this article is to describe the income approach in detail so that you, a potential investor, can quickly use it to […]
Commercial vs Residential Property Valuation Techniques: What is the Difference?
There is an old adage that something is only worth what someone is willing to pay for it. In the real estate industry, this is only partially true. There is always a price that an investor is willing to pay, but it may or may not be close to the “fair market value” of the […]
Cap Rates in Commercial Real Estate: Formula & Explanation
When considering the purchase of a commercial real estate asset, all investors will use a property’s existing cash flows to create a “proforma” financial projection of future cash flows. The proforma, which includes allocations for income and expenses, serves as the basis for calculating the property’s potential return on investment. A diligent real estate investor […]
Real Estate Returns: Cap Rate vs. Return on Cost
Every real estate investor, whether they focus on commercial or residential property, has their own set of requirements that they use to determine whether or not an investment property is worth purchasing. In commercial real estate investing, there are two widely used methods of measuring returns on a real estate investment: capitalization rate (“cap” rate) […]