Commercial Real Estate Terms and Vocabulary for Investors


Perhaps one of the most important aspects of understanding all the intricacies associated with investing in Atlanta commercial real estate is to simply understand the lingo. Knowing what terms and words mean related to commercial real estate investing can ultimately save beginning as well as experienced investors time, trouble and money. Keep in mind that there is a substantial body of information as well as a wide variety of vocabulary and acronyms associated with commercial real estate investing. Those who aren't familiar with this type of terminology may wish to consider the terms as outlined here. Ultimately knowing in advance all of the unique verbiage, vocabulary and acronyms associated with investing in commercial real estate can make the process easier especially when working with seasoned people within the industry.

Loan-to-Value or LTV

One term in particular that is well known in both residential and commercial real estate is loan-to-value or LTV. The loan-to-value is simply a ratio of the amount of money a borrower is asking for as compared to the total value of the asset that is being purchased. In addition, there is something known as a debt service coverage ratio. The debt service coverage ratio or the DSC is simply the operating income as compared to the total debt service. In essence, this indicates how much of the debt the borrower will be able to cover on an annual basis with the expected income. Another key term that is often used in purchasing Atlanta commercial real estate is known as the capitalization rate. The capitalization rate or cap rate is simply the income of the property that is then divided by the actual total property value. Another key bit of terminology associated with investing in commercial real estate is known as the cash on cash.

Vacancy Rates

The cash on cash is simply the annual income as compared to the amount that is actually being invested. Keep in mind that with regard to this particular term, the amount invested could be the amount that was placed as a down payment. Equally important is a term known as vacancy rate. This is nothing more than the percentage of total properties within a given investment that are vacant at any given time in a specific area. This can have an important bearing on return on investment. In addition, usable versus rentable square feet is another key factor that should be taken into account. And finally, something known as ad valorem is in the most basic of terms regarding taxes based on the assessed value of an actual commercial property. Understanding these basic and important terms and vocabulary can greatly improve an investor's overall performance when purchasing commercial real estate in the Atlanta area. Contact Wiedmayer & Co. today to learn more about Atlanta commercial real estate investments with a proven and winning strategy.