Just as with any industry, there are frequently used terms and vocabulary specific to that industry. Therefore, if you are going to be investing in a Dalton, GA commercial real estate space, it would benefit you to learn the most commonly used terms. Doing so will help you through the day-to-day operations, as well as coming across as a seasoned pro.
Here are the most popular Dalton, GA commercial real estate vocabulary and acronyms you need to know.
- Ad Valorem
Ad valorem means “according to value” in Latin. The ad valorem taxes are those that are levied based on the assessed value of any given property.
- Vacancy Rate
The vacancy rate is the percentage of units or spaces that are vacant within any specified period of time. To calculate the vacancy rate, you simply take the number of vacant spaces, multiply them by 100, then divide them by the total number of spaces in the building. That will give you the vacancy rate and anything below five percent is considered a good vacancy rate number.
- Capitalization Rate
The capitalization rate, also commonly referred to as a CAP rate, is the income of your Dalton, GA property, divided by the total value of the property. This number will give you the net income the property can be expected to generate and is used to estimate an investor’s potential return on their investment.
- Usable Square Feet Versus Rentable Square Feet
Usable square feet is defined as the total area that is dedicated to a specific tenant. Rentable square feet is defined as all the usable square feet plus a percentage of the building’s common areas such as hallways, lobbies, public bathrooms, etc. The common area square footage is added to the tenant’s lease. Additionally, the rentable square footage is used to calculate the tenant’s annual base rent expense. For this calculation, you simply multiply the rentable square feet with your annual base rental rate.
- Cash on Cash
This term refers to the ratio of annual before-tax cash in relation to the full amount of cash you invested. This number is used to determine the cash flow you could expect to receive from income-producing assets.
- Loan-to-Value Ratio
The loan-to-value ratio is the amount of money you’re borrowing against the asset you are purchasing. To calculate the loan-to-value ratio, you simply divide the amount you borrowed by the appraised value of your Dalton, GA asset.
- Debt Service Coverage Ratio
The debt service coverage ratio (DSC) is the operating income divided by your total debt service, or how much of that debt your income will cover each year.