Vacancy factor accounts for this reality and therefore you must subtract a vacancy factor from the gross rental income. $1,200/unit/month x 5 units = $6,000/month x 12 months = $72,000 per year gross rental income.Ĭommercial real estate rarely remains 100% rented 100% of the time. If each unit of our 5-unit apartment example rents for $1,200/month, the calculation is: Gross Rental Income Calculation To calculate the monthly gross rental income, multiply the monthly rent by the number of units and then multiply by 12. The gross rental income is the total income generated by a rental property before deducting expenses. Once the NOI and Cash Flow have been determined, the next set of commercial real estate terms are used to make intelligent investment decisions. Those basic terms are:ġ1 Decision Making Commercial Real Estate Terms Using a 5 unit multi family apartment building as our example, you'll learn the 7 basic commercial real estate terms which are used to determine the Net Operating Income (NOI) and Cash Flow (CF). Armed with a clear understanding of these 18 fundamental terms, you can intelligently invest in commercial real estate. The first 7 terms help you determine cash flow and the next 11 terms help you analyze potential investments and make decisions. Discover the 18 most important commercial real estate terms you must know if you want to become a successful commercial investor.
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