Last week Troy discussed the second thing residential agents should know about being a commercial broker, understanding asset classes. This week in part 3 of our 4 part series, Troy will discuss the third thing residential agents need to know and that’s their numbers.
#3. Know the Numbers
The biggest mistake any new commercial broker can make is not understanding the numbers. Taking the time to learn what the essential equations in commercial real estate are; NOI, Cap Rate, and IRR just to name a few, is detrimental. Not only knowing what these equations are but knowing how to calculate and analyze them is important.
Too often do we hear from residential agents that make the move to commercial that they hardly ever consider cap rates when conducting commercial transactions, that cap rates don’t really matter. Cap rates like many of the other equations used in CRE really do matter, cap rates for instance help commercial brokers determine the rate of return on a real estate investment property, that seems pretty important if you ask me.
We get a number of inquiries a day from both brokers and investors who require local cap rates for a certain property type. This means that even the most experienced commercial brokers and investors value cap rates and use them everyday when selling and buying properties, so why shouldn’t you?
Unfortunately new commercial brokers don’t even take the time to learn the most basic aspects of CRE like income and interest rates. Learn to analyze these numbers involved in commercial real estate transactions. Understanding these numbers will give you a deeper look and understanding of the property at hand and the potential it can have in the future.
As we’ve mentioned before, CRE requires you to do your homework. If you want to be successful in anything, you have to put in the work, this is also true of CRE. Do your homework and continue to do it, the CRE market continues to change and your knowledge of this industry should continue to change along with it.
Join us next week for part 4 of our What Residential Agents Should Know About CRE Deals series. Next week we’ll talk about the importance of understanding the market and why it’s important for new commercial brokers to do their homework when it comes to the ever-changing commercial real estate market.