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How to Calculate a Commercial Real Estate Investment Return (ROI)

The search for a successful commercial real estate investment has one objective; to create the greatest return on the capital invested. The real estate executive must have the ability to make and interpret financial calculations to determine the investment return. You may have sophisticated financial modeling tools and a crack team of analysts to do the work or you might be on your own with a simple spreadsheet. Either way you need a basic understanding of how to calculate commercial real estate investment returns.

There are three primary methods of evaluating the financial return of a commercial real estate investment. You can look at a static or pro forma return on investment (ROI), an internal rate of return (IRR) or the net present value (NPV) of an investment. Actually, you can use all three methods to have a more complete financial picture. Many times these are used with a 10-year or longer cash flow projection and some sort of discounted cash flow analysis. There are other less useful but widely used methods to evaluate the return on an investment such as calculating the payback period. This article will look at the three most useful methods previously mentioned.

This is a great article by Michael Shelton if you are new to the commercial real estate industry or still expanding your knowledge on calculating return on investment. Prospects and Investors want to know how much income their going to make if you want to learn how to figure that out click the link

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