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4 commercial real estate terms every investor should know

Every real estate investor needs to have a repository of vocabulary words they're familiar with in order to navigate the complicated world of property investment, and the commercial real estate industry is no different. If you're a commercial real estate investor -- and especially if you're fairly new to the industry -- keep reading and make sure that you fully understand the four terms that follow:

1. Building classifications

Every commercial real estate building will have a specific classification as either a Class A, Class B, Class C or Class D property. These classifications are fairly standard. Class A buildings tend to be newer with the highest quality construction and finish and they tend to be in excellent areas with easy access, while offering various amenities. These are the "luxury" buildings in the commercial real estate industry. As the letter goes up, various metrics associated with the property will usually indicate lower value and/or lower levels of luxury and use.

2. Cap rate

The capitalization rate refers to the annual net operating income potential of the building divided by the price of the property.

3. Common Area Maintenance (CAM)

Common area maintenance is the extra rent that the property owner charges tenants in order to pay for the maintenance of common areas. This may include snow removal, parking lot sweeping and costs associated with other extras.

4. Concessions

Concessions are special perks that landlords offer tenants to attract them to sign a lease. They may be free rent, lease buyouts or above-standard tenant allowances.

These are just a few terms that the successful commercial real estate investor should familiarize him or herself with. The more you know about this topic, and the more you understand about commercial real estate law, the better investor you're going to be.

Source: Matthew J. Obermeier, "San Antonio Commercial And Real Estate Litigation Attorney," accessed March 23, 2018

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