CRE Formulas Every Investor Should Know

Commercial Real Estate Formulas Every Investor Should Know
Commercial real estate involves formulas that differ from residential investments. Are you familiar with these key calculations?

Here’s a summary of some key formulas to remember when you’re investing in commercial real estate (and don’t forget to consult with real estate and financial experts for more advice).

Net Operating Income (NOI): This formula is used to determine the amount of income your property generates. It focuses on the real estate itself, not the financial situation of the prospective investor. To calculate the net operating income, subtract the operating expenses from the real estate revenue the property produces. Revenue includes all money generated from the property, not just leases. This could include parking and other facility fees.

Capitalization Rate: This is also known as the “cap rate.” Investors often use it to quickly determine how properties they own are performing financially or to assess the return on investment of properties they’d like to buy. It is calculated by dividing the net operating income by the property asset value. Cap rates are expressed as percentages.

Cash-on-Cash: This is a rate of return often used to calculate the cash income earned in relation to the cash invested in the property. This is calculated by dividing the net income from a property for one year by the total cash invested into the property, expressed as a percentage. It takes into account debt financing but only considers income from one year.

Feel free to contact me for assistance with any potential investments. I’m happy to help you find a property that would be a solid investment for you.

Are You Tapping into the Potential of Video Marketing Yet?

When was the last time you read a user manual? If you’re like most people, you’re more likely to learn about a product or service, research a repair, or figure out how to assemble a piece of furniture by watching a video than reading a manual.

It’s a simple fact: video attracts attention. This is an important concept to keep in mind when developing marketing plans.

There are countless approaches to video marketing, but it’s important to start with a specific content strategy and clear goals in mind. This will help you decide what kind of content to create and where to embed it. Here are some basic video marketing strategies to consider.

Explainer videos tell what your company does. This simple, straightforward type of video describes your business model, defines your brand, and tells consumers why your small local business is important and/or why your product or service is necessary to them.

Educational videos educate audiences about the company or something related to the company, the industry, or the market in general.

Product videos highlight specific products, often in creative ways. A tutorial or instructional video teaches people how to use the product or ways to be creative in using it.

Then there are video testimonials, staff bio videos, FAQs, and more. Indeed, the world of video marketing is endless. There are many approaches you can take and many different goals you can achieve. And video making has become accessible even to the inexperienced.

These days, it’s easy to get started: just download a video maker app, and you’re on your way to video marketing.

The Benefits of a Workplace Fitness Culture

Americans are workaholics by nature. We often forget to take vacation days, and many of us regularly log on at all hours to monitor projects, respond to inquiries, or deal with problems.

In 2015 (the last year for which data is available), the average American employee worked 38.7 hours per week for 46.8 weeks, according to a Pew review of Labor Department data. An estimated 40% of US employees regularly worked more than 50 hours per week, and 20% logged more than 60 hours per week.

As a result, wellness programs and initiatives that encourage a workplace culture of fitness are important to employers and employees alike. There are plenty of benefits to having a workplace culture of fitness.

Topping the list: fitness dramatically lowers healthcare costs. Experts estimate between 70 and 90 percent of healthcare spending is due to problems associated with lifestyle choices such as lack of exercise, poor nutrition, and smoking that lead to chronic diseases, lost work days, and lower productivity.

Fitness can also counter depression, dissipate stress, and help people sleep better. A regular fitness program can even reduce blood pressure and cholesterol levels. Furthermore, knowledge of fitness and ergonomic techniques can help workers alleviate neck, back, wrist, and arm fatigue.

Let’s not forget the social aspect. Those who exercise together develop relationships that often translate into a company culture of support, cooperation, loyalty, and goodwill toward their work, their colleagues, and their team.

Coworking Trend May Bode Well for Real Estate
The decoupling of work and location has important implications for the world of commercial real estate.

The flexible workspace industry has grown exponentially in recent years, and these days the coworking trend isn’t just for freelancers, SMEs, and startups.

Offering flexible and mobile work options for staff and contractors is key to staying competitive in today’s world, and large companies are now seeing the benefits of shared work spaces as opportunities to test new markets, recruit scarce talent, and launch products without a huge initial outlay of time or resources. As a result, most, if not all, coworking operators are planning to expand or open additional locations in the near future.

So what does this mean for the real estate industry? Lease terms are changing. As the coworking trend continues, shorter-term and more flexible leases, as well as modular and/or highly customized floor plans, are likely to become the norm. Shorter leases on collaborative, flexible workspaces are now prevalent in major markets, especially in hotbed cities such as London, Paris, Beijing, New York, Toronto, and San Francisco.

This will be a paradigm shift for owners of commercial real estate who previously relied on steady, predictable returns under long-term leases. But the good news is it may mean more income per square foot since coworking spaces can generate up to three times more per square foot than traditional workspace offerings.

In addition, the coworking model can serve as a funnel for lucrative long-term landlord-tenant relationships that, at least in part, resemble traditional arrangements.

A landlord may, for instance, rent a small or less desirable section of space to a startup that does not need a large space or doesn’t qualify for a long-term commitment. If the young company succeeds and grows, the landlord will reap the reward as the young company expands into more space.

That said, the flexible office concept also poses challenges for investors. Landlords may find it more difficult to lease smaller office units, given the appeal and potential cost savings of the coworking model.

In fact, private offices located within coworking venues are gaining favor and currently account for up to 25 percent of coworking space occupancy. The appeal of coworking venues, including on-site infrastructure and amenities, community activities and events, and a shared office culture that involves both other companies and independent workers make the arrangement desirable, especially for Millennials.

As the coworking trend continues to grow, more and more real estate investors are adding flexible workspace sites to their portfolios as a diversification tactic.

Whether coworking venues themselves are the future of office real estate or simply a stepping stone for entrepreneurs and SMEs, they offer an opportunity to establish productive relationships between tenants and landlords at an early stage.

Whatever the eventual outcome, it’s clear that flexible workspaces are changing the game for companies as well as for commercial property owners and real estate investors.

Contact me to discuss how you can take advantage of these changes with your next investment.

SA Realty Watch Group
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Worth Reading
Want Your Brand to Stand Out on Social Media? Try These 8 Tips
By Larry Kim

Small Business Trends

Social media has transformed personal and business communication. But making your business stand out on social media may seem impossible. It doesn’t have to be. This article shares how to create a winning social media strategy, which includes establishing a plan and a calendar, knowing your audience, and taking risks. To further use social media to your advantage, keep in mind that it gives you ways to gather feedback and incorporate it into future efforts.

How to Identify a Sales Bottleneck in 30 Minutes (Or Less)
By Lucas Miller


Before you hire a business coach to understand why your company’s growth has stalled, read this article. Understand different parts of your company: sales, marketing, fulfillment, and systems and operations. Write down a process for each section. Look at the sales system and determine where inefficiencies are. This article gives examples of what those processes could be.

15 Commonly Asked Questions About Small Business Loans
By Joyce Walsack

US Chamber of Commerce

Loans can benefit small companies, but applying for them can confuse those who need them. Begin your research here. This page provides the basic information you need to obtain a loan, beginning with understanding what working capital is, how it can increase, and who can provide loans for it.

This Month – Social Media
Social media has become an integral part of our society. Personally and professionally, we are bombarded by a constant stream of posts, pictures, and tweets. How can you use this technology to further your business? Try these links.

Just getting started with social media? Here’s a beginner’s guide to creating a social media marketing funnel:
A Beginner’s Guide To Executing A Social Media Marketing Funnel

When using social media, you want to do more than post information. You want to engage your target audience. Here’s how:
How to Reach Your Target Audience on Social Media More Effectively

Get organized with a social media calendar that guides your efforts. Try this template for small businesses that includes tips for customizing and links to other resources:
Social Media Calendar Template for Small Business

As you navigate the world of social media, you’ll need a map. Here are 10 social media laws to follow:
10 Laws of Social Media Marketing

Not sure where to go from here? Use this step-by-step process to create a social media marketing strategy:
How to Create a Social Media Marketing Strategy in 8 Easy Steps

This newsletter and any information contained herein are intended for general informational purposes only and should not be construed as legal, financial or medical advice. The publisher takes great efforts to ensure the accuracy of information contained in this newsletter. However, we will not be responsible at any time for any errors or omissions or any damages, howsoever caused, that result from its use. Seek competent professional advice and/or legal counsel with respect to any matter discussed or published in this newsletter.
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