ROI
I am new to commercial property (my experience is in SF residential).
Understanding that all markets are different, I'm wondering what sort of return on investment is considered "reasonable" when looking at a commercial property investment.
I am in one of the hottest real estate markets in the nation (southeast florida) and so there is a lot of inflation here.
It is too diverse to say a one ROI fits all commecial properties. Its different for warehouse versus medical offices etc etc. Its also different for Miami versus Naples. Your best bet is to get your comps on each property and see what the neighbors are getting for rent and what they bought it at. To see what they bought it at check out the county tax appraisers, then see what they get in rent. try and be in that range or better.
Good Luck,
Kyle
In SW Florida many investors are foregoing positve cash flow and speculating on appreciation.
The best thing to do is to look forward and use IRR
(Internal Rate of Return). Most investors are happy with 14% plus.
Gregg
[addsig]
Another problem with just looking at ROI.
If you're going in with a small down payment, say $1.00, and you get any kind of cash flow your ROI is going to be in the thousands of percentages.
If you don't use a down payment, ROI is impossible to calculate.
formulas to figure IRR please?
It is easiest to use an excel spread sheet or financial calc.
IRR is the internal rate of return. In other words the rate of return (annuallized) for a cash flow over a period of time - inside the deal. It does not take into consideration what you do with the positive cash flow outside the deal.
For example if you put out $20,000 in month one for your up front money and your positve cash flow is $500 the first month, $750 the second monyh. $400 the third month, and $600 the fourth through the twelfth month and then you sell in the 12th month and net $22,000, an IRR will tell you what rate of reurn you have.
If you have excel you can plug in a series of cash flows and get an IRR.
_________________
Gregg Fous
Investor/Developer
"If you wait for all your ducks to get lined up, you will never get into the water"[ Edited by GFous on Date 11/06/2003 ]