When it comes to making a decision on whether to invest in a commercial property, there are a variety of variables that an investor can take into account. First and foremost, in many cases, is return on investment, which calculates the amount of money that a investor will make compared to the amount of money they’ve invested into the property, minus any expenses. Other variables include the safety of an investment property, a property’s development potential, the property’s location, and an individual investor’s financial instincts.
In commercial real estate, return on investment (also known as ROI), is a measurement of how much money an investor receives after all expenses have been deducted. The formula for ROI is:
ROI = (Investment Gain - Investment Cost)/Cost of Investment
Many factors can affect the ROI of a commercial real estate investment, including the size of any commercial real estate loans on the property, the interest rate of those loans, as well as any management, repair, or renovation expenses needed to maintain or upgrade the property.
When an investor or developer sells a commercial property, they'll usually have to pay taxes then and there-- but not always. An IRS 1031 exchange is a transaction that allows a commercial property seller to defer paying taxes on the sale of the property if they use the funds to buy another, similar property within a specific period of time.