Frequently Asked Questions

We Have The Answers To Your Real Estate Questions

If you need help, we have a list of frequently asked questions and answers. We strive to give you the best buying experience possible. Click a question below to view the answer.

It is not so fashionable anymore, but once upon a time a cap rate (capitalization rate) was a way of balancing, or measuring, the potential risks and rewards of an investment. The formula is Value = Net Operating Income divided by the Cap Rate. For very low risk investments (a Panera land lease or a net lease with Walgreens for instance), the cap rate would be significantly lower than for high risk investments (say a four-unit apartment building with a great deal of deferred maintenance). Remember, the lower the cap rate the higher the purchase price; the higher the cap rate, the lower the purchase price.

Net operating income (NOI) equals the gross income an investment property will generate in a year minus the annual expenses of owning the real estate. Typical annual expenses include property taxes, hazard insurance, maintenance, management, utilities, trash collection, snow and ice removal, landscaping, and reserves for replacements. Mortgage debt or interest is NOT considered an expense in calculating the NOI.

Some investors would consider an ideal cap rate that includes all operating and acquisition costs to be 8% or higher, though many do well as low as 7%. It is important to realize that different investors have different motivations and needs. What may be a good deal for one investor, may be another investor’s bad deal.

Something to remember: Most investors are looking for a return on their investment. If one overpays for that return on investment, the return of the original investment may be at risk.

A letter of intent describes what the terms of the real estate transaction are before a lease or a purchase agreement are written up. The letter of intent is used to allow a lessor or seller and the lessee or buyer to agree on all terms of the proposed deal.

Typically letters of intent are NOT legally binding. However, it is important to read everything you sign. If you sign it, it can be considered legally binding. Instead of LOI, we like to utilize term sheets without signatures.

We advise ALL buyers/lessees and sellers/lessors to consider legal counsel.

In Central Ohio, commercial lease rates are usually quoted by price per square foot (SF) per year. For example, if a property is 5,000 SF and rate is $5.00/SF, the total annual lease is $25,000.

Normally part of a NNN (referred to as Triple Net) lease. These are charges the landlord assesses against the tenant, such as property taxes, insurance, and common area maintenance. As a lessee make sure you understand how the CAM charges are calculated before signing a lease.

Tenant Improvements (TI) are any additional build out required by user for its intended use. This money is allocated by the landlord and may require plans, permitting, and the hiring of contractors.

This is negotiated. Tenant usually pays over the term of the lease. Also depending on the term, the landlord can credit a certain amount.

An investor (''taxpayer'') may defer recognition of capital gains and related federal income tax liability on the exchange of certain types of property.

This is an investment transaction where an investor that sells a property can transfer that amount over to another property to purchase without paying capital gains tax on the property the investor sold. If there is no capital gain on the sale, then there no need to utilize a 1031 exchange.

Currently law states the exchange property or properties must be identified within 45 days and purchased within 180 days.

Make sure to discuss with your accountant when utilizing a 1031 exchange.

Experience counts…If you are considering investing in real estate, rely on one of the experienced brokers at Shai-Hess Commercial Real Estate.

Call Shai – Hess Commercial today and we will be happy to help you!