1) Why do investors need a buyer’s agent?
At Green Mountain Realty, our Asheville NC commercial real estate brokers prefer to work as buyers’ agents and rarely take listings. Our brokers will work with a buyer/investor to determine the right investment and then help the investor negotiate the right purchase price. In addition, our brokers will work with our network of mortgage brokers to find the best financing for our investor. Our brokers ask questions and will find the commercial real estate financing that works best for the property and the investor.
2) Should properties be compared only by price, NOI (net operating income) and cap rate?
At Green Mountain Realty, our Asheville NC commercial real estate brokers know that the cap rate is just the starting point. Low cap rates usually mean long term leases with national credit tenants. Shorter remaining leases with local tenants mean higher cap rates. It’s the theory of risk versus reward. In addition, our brokers “tear apart” the NOI calculations to make sure that all of the expenses and replacement reserves have been included properly. Financing will not only be affected by the cap rate but by the strength of the commercial real estate tenant and remaining years on the lease.
3) Why are cash-on-cash and IRR (internal rate of return) numbers more important than the cap rate of a commercial real estate property?
The cap rate is the investor’s rate of return or cash-on-cash return for the first year if the investor pays cash for the property. Most commercial real estate investors choose to finance part of the purchase price to increase their cash-on-cash return so that it’s higher than the cap rate. It’s called leverage and is usually a good thing within reason. However, once financing is involved, the interest rates and terms can vary widely depending on the strength of the tenant and remaining years on the NNN lease. The commercial real estate lenders will charge a higher interest rate for weaker tenants and shorter leases. In addition, the length of the amortization schedule may be shorter with a shorter lease which will increase the monthly debt service. All of these factors will affect the cash-on-cash and IRR.
4) Should an investor always go for the investment with the largest cap rate and highest projected cash-on-cash return?
At Green Mountain Realty, our Asheville NC commercial real estate brokers always explain to our commercial real estate investors that properties with higher cap rates usually have weaker tenants and shorter lease terms remaining. In addition, there may be deferred maintenance or the property may be old and somewhat obsolete. While a commercial real estate investor may be able to take advantage of a high cash-on-cash return, it will usually be short lived and painful in the long run.
5) Which commercial real estate investment is best?
At Green Mountain Realty, our Asheville NC commercial real estate brokers work with our investors to properly determine which commercial property is best suited. A ground lease NNN property with a new 25 year lease may be just what some ultra-safe investors want and have all cash for the purchase. However, another investor may be better suited for a NNN Walgreens property with a new 25 year lease with 70% financing. Of course, the Walgreens will have a better return. On the other hand, another investor may want some limited risk and want a multiple tenant property with a mix of national and local tenants that will generate a better return. Our Asheville NC commercial real estate brokers will help the commercial real estate investor weigh the advantages and disadvantages of each property to determine the right fit for the investor.
The Most Common Asheville Commercial Real Estate Most Frequently Asked Questions
We realize that the above questions are just a few of the most commonly asked questions we get in regards to Asheville commercial real estate by those wishing to get involved in commercial real estate investing. The brokers at Green Mountain Realty are always pleased when potential clients call us to learn more about us as experienced commercial real estate brokers here in the Asheville NC area. Call Green Mountain Realty today for more answers on Asheville commercial real estate frequently asked questions and for all of your Asheville commercial real estate needs.