Legalese – 4 Commercial Real Estate Terms All Prospective Investors Need To Understand

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Credit: | Legalese – 4 Commercial Real Estate Terms All Prospective Investors Need To Understand | Deciding to invest in commercial property can be one of the best decisions you make in your lifetime, with benefits for you and your family’s future. While you may have experience or knowledge in handling residential property, there are some differences when it comes to the commercial game. That’s why it’s so important that you do your research and equip yourself to make better long-term choices. To help get you there, here are four real estate terms every commercial property investor needs to know.

1. CRE

As an investor, it’s inevitable that you’re going to be hit with all kinds of acronyms and abbreviations. The first and most important one to know is CRE – Commercial Real Estate. This is simple, yes, but if you haven’t got it locked in your head, it’s easy to get thrown off and then miss other vital information while your brain scrambles to figure out the acronym. 

When it comes to commercial property management services, hiring a reliable property manager to handle your CRE portfolio is the best way to go. They’ll be able to deal with all the fine details of your tenancy selections, checks, and document processing and attend to urgent maintenance issues. With a good property manager, you don’t need to be everywhere at one time. Instead, you can focus on your work and uncovering your next lucrative investment.

2. Net Operating Income (NOI) 

Another acronym you’re going to be coming across very frequently is NOI (Net Operating Income). This refers to the income you make on an annual basis from your commercial property. It isn’t limited to just your rental income but any income generated through your property through other services like parking.

The net amount is the number after all your property expenses are taken into account. These include everything from property management fees and taxes to utilities. Your net operating income is calculated before tax and does not include expenses like depreciation or loan repayments.

3. Usable and Rentable Square Footage

Two phrases that will be used in relation to your commercial property are its ‘usable square footage’ and ‘rentable square footage.’ When determining things like your rental conditions, you will need to be able to distinguish between the two as they will affect tenancy. 

The usable square footage refers to all the areas of your property that will be occupied by a tenant. This is the wall-to-wall space that you will refer to in tenancy contracts. ‘Rentable square footage,’ on the other hand, includes spaces and areas which may be shared amongst tenants. In a commercial property, this can include common areas like bathrooms, hallways, janitorial spaces, or outdoor spaces – all things that need to be taken into account when calculating rent.

4. Add-On Factor

Now that we have covered ‘usable square footage’ and ‘rentable square footage,’ getting into the ‘add-on factor’ will be a breeze. The add-on factor, in commercial real estate, is worked out by taking the number of usable square feet in your property and dividing it by the number of rentable square feet. 

Knowing this number is essential in determining lease rates. Just be sure to have a solid understanding of what you consider to be ‘rentable space’ when using these final numbers as it is a question you will often get from prospective commercial tenants.
Having a better understanding of the industry jargon is a great way to start your commercial investment journey. What comes next, be it more research or finding your best local property manager, is up to you!

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