If you are like me and have noticed a lot of demolition work taking place on 33 around where the Mashita food truck parks, you may be wondering what might be constructed in that location. Unfortunately, there is nothing going up in that location at the current moment. The owner is simply clearing trees to make the property more marketable to sell. If you want to review details on the listing, click here.
If you have any questions about this development or any others, call or email me.
Capitalization rate, commonly known as Cap Rate, is the Net Operating Income divided by the sales price. The Cap Rate tells you how well your invest performs if you bought the property in cash. This number is frequently used in commercial and investment real estate to determine the value and profitability of a property. To find the cap rate, you divide the NOI by the sales price.
Let's pull the example used in the NOI blog post and figure out what you would need to pay for a property that has a NOI of $55,000 to get a 10% cap rate.
55,000 = 550,000
So, we'd need to purchase an investment property, with a NOI of $55,000 at $550,000 to get a 10% cap rate.
Let's double check our math.
55,000 = .1 or 10%
This is the last post of a serious entitled: The Top 10 Terms of Commercial/Investment Real Estate.
Welcome to the list of the top 10 terms used in commercial/investment real estate. If you are thinking of getting into investing and/or commercial real estate. It will help to familiarize yourself with these terms as they are used frequently in the field.
The following is a summary. Click on the terms to get examples and more detailed definitions.
1. Gross Income $
Gross income is all of the income that you make on a property. This includes rent, laundry, storage fees, late fees, vending machines, etc.
2. Vacancy $
Any unit that is not occupied and not producing income is considered a Vacancy. Keep in mind that if a unit changes tenants in the same month, it is considered a turnover, not a vacancy.
3. Vacancy Rate %
This is the number of vacancies divided by the total number of units.
4. Effective Gross Income $
Effective gross income is a number that takes into account what you will be making with vacancies.
Income - (Vacancy Rate (%) x Income) = Effective Gross Income
5. Operating Expenses $
The total annual expenses of an investment; including taxes, insurance, utilities, management fees, landscaping, maintenance, repairs, and advertising.
6. Net Operating Income (NOI) $
To get the NOI, take the Gross Income and subtract it by the Operating Expenses.
Effective Gross Income - Operating Expenses = NOI
7. Debt Service $
Debt Service is the annual cost of your mortgage.
Monthly Mortgage Amount x 12 = Debt Service
8. Cash Flow $
Most buy and hold real estate investors agree that cash flow is the ultimate goal. To calculate cash flow, you take the NOI and subtract it by the Debt Service.
NOI - Debt Service = Annual Cash Flow
9. Cash-on-Cash Return %
Cash-on-Cash Return is what you would use to compare your investment to other types of investments, like stocks. To calculate Cash-on-Cash Return, take the Annual Cash flow and divide it by the Down Payment amount.
Annual Cash Flow
10. Capitalization Rate %
AKA Cap Rate, shows how well the investment performs if you pay all cash. To calculate a Cap Rate, you take the Net Operating Income and divide it by the Sales Price.
Source: Commercial Real Estate for Beginners: The Basics of Commercial Real Estate Investing. By Peter Harris
On the national level, commercial real estate prices are officially higher than they were in 2007; at the peak of the market before the crash. According to Jim Costello, RCA’s senior vice president, 70% of increase in sales prices are due to declining capitalization rates.
The increase in sales prices is led by multifamily and office buildings in Central Business Districts.
According to Moody's report, the index is 1.6% higher in August and 15.2% higher than August 2014. Furthermore, this is 1.5% higher than the peak of commercial market in 2007.
Harrisonburg and Rockingham County
Sources: Scotsman Guide and Local MLS
First of all, no apartment complex, for sale, is going to advertise their vacancy like the sign above. Why? Vacancy is any units that are not occupied. Obviously this means less rental income.
So should you avoid properties with vacancies?
Not necessarily. If the property's price is based off of the income it makes (See Cap Rate), you may be able to get the property for a discount. Sometimes the units may be vacant because they are in need of repair. This would allow you the opportunity to fix the units, get the property fully rented, and quickly increase the value of the property.
This is a continuation of a serious entitled: The Top 10 Terms of Commercial/Investment Real Estate.
A local treasure ready for business. La Casita served the Dayton community since 1995. The building has since gone under multiple additions and renovations. Conveniently located off of Route 42 and across the street from the Cargill factory. Just 3 miles from interstate 81, 2 miles from Harrisonburg, and 2 miles from Bridgewater.Equipment included:Ice maker, 2 Chest Freezer, Pizza prep-refrigerator, Industrial True refrigerator 2 doors, Walk in Cooler, Deep fryer, Stove 6 burners, Hobart dish washer, Industrial gas Griddle plate, Three compartment stainless steel sink, Stainless Steel prep-table, Industrial coffee maker, 2 burners, Countertop stainless steel small warmer table, 8 Restaurant Tables, 35 Restaurant Chairs, Electric street sign, and Kitchen Fire extinguisher System
Ideal location for a medical/professional office. This 0.83 acre commercial lot is a mile, or three minute drive, from Sentara RMH. The conveniently flat lot is also adjacent to Harrisonburg's Community Health Center. Less than half a mile to JMU facilities with a multitude of student housing nearby.