Internal Rates of Return for Commercial Real Estate

Building on our article from last week, we’re going to focus this week on a commonly used term in finance called the Internal Rate of Return (IRR). Before we get into IRR, we first need to give a quick refresher on capitalization (cap) rates. The formula can be expressed graphically as follows: Where: I =[…]

Going Beyond Cap Rates for Commercial Real Estate

Commercial real estate investors love to talk about cap rates, and for good reason: the underlying data is fairly accessible and the math is relatively simple. In the most basic of terms, an investor calculates the net operating income (NOI, or net income) based on removing all applicable operating expenses from the gross income.  Dividing the[…]

Understanding Income Property Values

MORE THAN JUST A “CAP” RATE Properly assessing a commercial investment property’s value is a complex and lengthy activity. Due to the time consuming nature of the process, the temptation is to simply apply the prevailing cap rate in the market to the potential net operating income. The problem with this basic calculation is that[…]