If you are just getting started in the world of commercial real estate, the entire concept may seem very overwhelming to you. This is probably because many of the terms you hear may not be familiar to you. The best way to get ahead in this arena is to educate yourself, so make sure that you learn all of the following terms before you continue.
Return On Investment (ROI) – This is probably one of the terms you will hear the most frequently. It refers to the amount of benefit you receive from a property you purchased weighed against the amount of money you had to spend. People use this to gauge how well they have invested.
Capitalization (Cap) Rate – This refers to the amount of money your investment will yield each year. It is calculated by dividing your operating income by the amount you paid for the property.
Concessions – When landlords are trying to attract tenants, they will offer concessions as a way to make the deal more attractive. Common concessions include free or discounted rent and lease buyouts. It is usually not necessary to offer these when the real estate market is doing particularly well.
Tenant Improvement Allowance – Sometimes landlords are willing to allow the tenant a certain amount of changes before they move it. This usually correlates with the type of business that is being run. For example, if someone is opening a pizza place, the landlord may agree to pay for some of the decor and equipment needed.
Build Out – This refers to any improvements of additional construction that are done after an initial space has been completed. It includes things like plumbing, flooring and electrical work.
Capital Improvement – Any changes made to a property that extends its life. This refers to things like new elevators and roof replacements.
Deed Restriction – Restrictions within a deed that limit the way that people are allowed to use the property. For instance, there may be a restriction on using the property for sporting establishments.
Holdover Tenant – A tenant who remains on the property, even after the terms of the lease are over.
Joint Tenancy – When a property is owned by more than one party. In the event one of them passes away, the other has the right of survivorship.
Loss Factor – The amount of space on a property that is not usable space due to the presence of walls, elevators and other unmovable structures. This figure usually ranges from a very modest 5% to something on the higher end, like 15-20%.
There are many more terms that are associated with the commercial real estate industry, but these are the ones that are considered the most important. Before you head out there and start dabbling in real estate, make sure that you try to learn all you can. Learning all of the important terms, like the ones listed here, is only a small part of it.