Becoming Hip to Commercial Real Estate Jargon
If you are just beginning your journey into the business of commercial real estate, you might be a bit overwhelmed. Having to learn a whole new vocabulary of words and phrases likely doesn’t help. If you are having trouble getting into the swing of using commercial finance jargon, here are a few phrases and definitions that you might find useful.
1. Operating Expenses
This one is relatively easy to understand and remember. Operating expenses are any of the costs that you’ll need to deduct from the income you’ve earned. This can include a variety of different items such as property taxes and insurance. Utilities will be included here as well.
2. Cash-On-Cash Return
Cash-on-cash return is often abbreviated as COC. This equation will tell you the return on any expenses that you have paid out of pocket. In order to determine this, you need to calculate the income you receive from renting out the property and subtract your expenses. Take this amount and divide it by what you paid in cash in order to get the COC.
3. Return on Investment
Similar to COC, return on investment or ROI is a calculation of how much money you are making from the property in which you have invested. The difference is instead of using the amount of cash you paid, you will use the entire cost of the property.
4. Usable Square Footage
When you invest in a commercial property, you will want to know exactly how much space you have to use. The total square footage is not always indicative of this. There are spaces in the building, such as bathrooms, hallways and other areas that are not necessarily usable for your purposes. The usable square footage or USF takes this into account and will tell you the amount of space you will actually be able to use.
5. Tenant Turnover
If you are renting out your property, then tenant turnover is something that you will eventually experience. This happens when a tenant leaves the building and takes place during the period of time between when the first tenant leaves and a new one starts renting the property. The process includes cleaning, making repairs and generally preparing the space to be rented again.
Having a good understanding of commercial finance jargon can help you be more successful as you move forward. Remember that it is a learning process and that you will become more comfortable with the language as you continue.