Every industry has its jargon and terminology, and the commercial real estate industry is no different. If you don’t understand the jargon of the business you’re getting into, you will have a very difficult time keeping up. As such, we’d like to provide you with a definition for the following seven terms, which you will likely need to know and understand if you’re planning to buy a commercial property:
— Loan-to-value ratio: The LTV is the ratio of the amount of money you will borrow from the lender compared to the value of the property itself.
— Debt service coverage ratio: The DSC is the operating income divided by the total amount of debt service. This relates to the amount of debt you’ll be able to pay off with the income from your commercial property.
— Capitalization rate: The cap rate is the income production of the property divided by the property’s value.
— Cash on cash: This term represents the annual income of your property divided by how much you invested. The amount invested might simply be the amount of the money you used for a down payment.
— Vacancy rate: This refers to the percentage of properties that don’t have tenants in a specific area at a specific time.
— Usable versus rentable square feet: This is an important figure that notes how large a property is, and how much of the property can actually be used to generate rental income.
— Ad valorem: This is a tax that goes up and down depending on a property’s value.
San Antonio, Texas, commercial property buyers are well served to familiarize themselves with these and other commercial real estate vocabulary words. They may also want to employ the services of a qualified commercial real estate lawyer, who can guide and advise them to ensure that they property purchasing endeavors move forward as smoothly as possible.
Source: 42floors.com, “7 Steps to Owning Your Own Commercial Real Estate,” accessed Jan. 27, 2017