The capitalization rate is a fundamental concept in the commercial real estate industry. Yet, it is often misunderstood and sometimes incorrectly used. This post will take a deep dive into the concept of the cap rate, and also clear up some common misconceptions. Cap Rate Definition What is a cap rate? The capitalization rate, often …
Understanding the terms of a commercial real estate lease can quickly become a challenging task. One lease term that people often find confusing is the expense stop. In this post we discuss what an expense stop is, how an expense stop is typically used, and then walk through an example to bring it all together. …
What is a ‘mini-perm’ loan, how do they work, and how can you get one? A ‘mini-perm’ loan is a type of commercial real estate loan typically used for interim financing and it can be a key tool used for acquiring investment properties and in real estate development. They are available for a wide variety …
Valuing commercial property is an important step in every commercial real estate transaction. This post will demystify the commercial property valuation process and walk you through some common valuation techniques used in the commercial real estate industry. What is Value? Before we dive into understanding commercial property valuation, let’s take a step back and ask …
The real estate investment industry involves a lot of math, and understanding real estate finance includes knowing a lot of formulas and ratios. Sometimes it’s easy for even the best of us to forget or confuse many real estate formulas. This post will serve as a helpful guide to common real estate formulas you should …
Discounted cash flow analysis for real estate is widely used, yet often misunderstood. In this post we’re going to discuss discounted cash flow analysis for real estate and clear up some common misconceptions. As you follow along, you might also find this discounted cash flow analysis spreadsheet template helpful. Discounted Cash Flow Real Estate Model First, …
The first task in any real estate investment decision is to build a proforma, which is just a word that means cash flow projection. In this guide we will define the term proforma, look at an example of a simple real estate proforma, review a more complicated real estate proforma, and also discuss some nuances …
What is the difference between a cap rate and a discount rate? Because these concepts are often confused, this article will discuss the difference between a capitalization rate and a discount rate in commercial real estate, and leave you with a clear understanding of the two concepts. As you follow along, you might also find …
Commercial real estate can be broken down into several different categories. At a high level, when people think of different types of commercial real estate, they typically think about shopping centers, office buildings, or warehouses. But the commercial real estate industry is much more precise when it comes to defining property types. Below is a …
What’s the intuition behind Internal Rate of Return (IRR) and Net Present Value (NPV)? Discounted cash flow analysis is an essential tool in the commercial real estate practitioner’s toolbelt, but unfortunately for many people, there is still a lot of mystery surrounding this concept. First of all let’s get some definitions out of the way …