Commercial Real Estate can be a hard asset that yields a strong long term cashflow during the hold duration for those that invest in it. Today, we are going to look at some of the benefits of commercial property from a cashflow perspective.
Assuming the following are in place: A long term lease with a reputable tenant at market rental rate.
Monthly Cashflow: Investors will receive a handsome projected return on their investment on a monthly basis for a determined amount of time.
Predetermined Profits: with a tenant NNN lease, investors will know their net profits every year regardless of market, tax or other property expenses.
High Cash on Cash Return: Leveraging financing, one can increase the total cash on cash return which is expressed as a percentage of the annual cash flow after expenses over the total cash invested into the purchase thus far. Between 7-12% is considered a good figure depending on the market location, market cycle and the asset type.
Below is an example property:
For the first 2 years the total invested cash is $500,000, until year 3 we have a $100,000 cost for improvement for the property, and hence the negative cash on cash return on year 3 and comparably lower rate returns for years 4 and 5.
If you would like to learn more about how you can leverage these principles to maximize the investments in your commercial real estate portfolio, call me.