Overview
- Calculating your expected return on investment (ROI) before committing to a property will help you make prudent commercial real estate investment choices.
- Florida is an excellent location to invest in commercial real estate due to factors such as steady tourism, economic growth, and favorable tax structures for both individuals and businesses.
- Bankrate provides this formula to calculate expected real estate ROI: (Operating income + sale price of investment – acquisition price) / acquisition price
Generally, the Sunshine State is an excellent place to invest in commercial real estate due to factors such as steady tourism, strong economic and employment growth, and an appealing tax structure for both individuals and businesses, as we detailed in a previous blog entry. However, if you’re considering investing in commercial real estate in Florida, it’s wise to estimate the expected return on investment (ROI) for any property you’re interested in before making a final decision. Calculating your expected ROI can help you choose among various properties and maximize your eventual profits.
How to Calculate ROI for Commercial Real Estate
The ROI for real estate represents the profit you can expect to achieve after subtracting all of the costs associated with the property from the income it earns, according to Bankrate. Expenses can include, but are not limited to, the following:
- Purchase price
- Maintenance and repairs
- Remodeling
- Property taxes
- Insurance
Meanwhile, these are typical sources of income:
- Rent payments from tenants
- Appreciation or increased value over time
- Sale price
Bankrate provides this formula to calculate real estate ROI:
(Operating income + sale price of investment – acquisition price) / acquisition price
Investopedia provides a similar formula:
(Investment gain – investment costs)/ Investment cost
Various factors can impact your ROI for commercial real estate. It’s essential to consider details such as the following, according to Investopedia. Note: This is not an exhaustive list.
- The property’s condition
- Local economic forces
- Specific marketplace conditions (e.g., whether the area is experiencing population growth or people are leaving the region)
- Property type (e.g., industrial, retail or office space)
To ensure your investment is worthwhile in the end, it pays to partner with local real estate experts. The Avalon Suncoast team will manage your investment brokerage as if it’s our own funds on the line. We’ll do all we can to help you turn your property investment dreams into reality. Call 941-235-7474 or email sales@avalonsuncoast.com to talk to our commercial real estate pros today.