How to make good profit in Commercial Property
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Location and type matter
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Focus on yield and cash flow
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Improve the property
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Choosing the right tenants
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Buy low, sell high
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Exit strategy - income or capital gains
What investor are you?
INVESTOR 1
1000 pounds a month
Net Operating Income (NOI) target is £12,000/year.
Typical cap rate is 5 - 7 %
Aiming for property in the range 171000 (high yield) - 240000 pounds (low yield)
Examples
How to find great investment opportunities in commercial real estate
Property value is worked out by dividing the income with the cap rate.
Cap rate is decided by the markets. If it is a secure investment then the cap rate would be low.
INVESTOR 2
2000 pounds a month. Will accept a loan of 2%
net cash flow after loan interest should be £24,000:
Net Operating Income (NOI) target is £12,000/year.
Typical cap rate is 5 - 7 %
Cash Flow= NOI − Loan Interest = P × 0.06 − P×0.02 = P×0.04
So you would need to buy a property worth roughly £600,000 to generate £2,000/month cash flow after paying 2% interest, assuming a 6% yield.