Cap rate in commercial real estate

[Mike Khalil]

I been interested in learning and getting into the idea of purchasing a triple net strip center or shopping center but having a hard time making my numbers work when looking at a deal.

Example: $2M shopping center offered for sale at 7.25% cap rate, equates to a NOI of $145,000 a year or $12,083 a month.

Debt services =$8,200/m (25% down, 4% rate)

Insurance =$ 500-700/m

Taxes =$2000/m

=$10,700/m

that leaves you with a net cash flow of $1,383/m without factoring vacancies or any other major expenses.

Not very appealing on paper, am i missing something ?

[Steve Stuart]

@Mike Khalil

Mike, a couple points here...

NOI = Net operating income which means ALL expenses are already accounting for before reaching that number except debt service. You you can add back your figures for taxes and insurance. This will make your number look a bit better.

Being commercial it's also possible the leases are NNN.