Return Metrics for Commercial Real Estate Investing
When looking at a commercial real estate investment, a common question when trying to value a property is “What return metric do I need to use?” Common metrics include, Cap Rate, Cash on Cash and IRR. These metrics approximate a yearly percentage return you’ll receive on your property investment. Which return metric is best for your particular property? Let’s first look at how each metric is calculated.
How to Use Assumptions in Your Real Estate Pro Forma
To build a real estate property pro forma for a commercial building you need to make assumptions. These assumptions are needed to project your property’s cash flows going forward. You may even need to use assumptions to get your property’s current operating budget since you may not have exact budget numbers if your prospective property is not listed with a broker for sale. Without understanding the current operating budget, you need to use assumptions to calculate your property’s cash flows today, after which you use more assumptions to project your property’s cash flows in the foreseeable future.