What numbers to I look out for when investing in commercial real estate properties in Big Island?

Chiaki Yamada
Oct 7, 2023
2 min read

When investing in commercial real estate properties on the Big Island of Hawaii, it's essential to consider various numbers and financial metrics to make informed decisions. Here are some key numbers to look out for:

1. Cap Rate (Capitalization Rate):

The cap rate is a fundamental metric used to assess the potential return on investment in commercial real estate. It represents the net operating income (NOI) of the property as a percentage of its purchase price. A higher cap rate indicates a potentially higher return, but it's important to consider other factors such as property condition, location, and market trends when analyzing cap rates.

2. Cash Flow:

Analyzing the cash flow is crucial to determine the profitability of a commercial property investment. Cash flow is the net income generated by the property after deducting operating expenses, debt service (if applicable), and reserves. Positive cash flow indicates that the property's income exceeds its expenses, while negative cash flow may indicate potential financial challenges.

3. Occupancy Rates:

Understanding the current and historical occupancy rates of a commercial property is vital. High occupancy rates indicate strong demand, stable income, and potentially lower vacancy risks. Look for properties with consistent occupancy rates or opportunities to increase occupancy through property improvements or marketing strategies.

4. Rental Rates and Lease Terms:

Evaluate the prevailing rental rates in the area and compare them to the property you are considering. Analyze the lease terms, including lease duration, rent escalations, and tenant responsibilities. Favorable lease terms can contribute to stable cash flow and potentially increase property value.

5. Return on Investment (ROI):

Calculating the ROI helps assess the profitability and potential returns of a commercial property investment. ROI considers both income generated from the property (such as rental income) and any potential appreciation in the property's value over time. Consider both short-term and long-term ROI projections to evaluate the investment's financial viability.

6. Operating Expenses:

Thoroughly analyze the operating expenses associated with the property, including property taxes, insurance, maintenance costs, utilities, and property management fees. Understanding and accurately estimating these expenses will help you determine the property's profitability and cash flow potential.

7. Market Trends and Economic Indicators:

Stay updated on market trends, economic indicators, and local factors that can impact the commercial real estate market on the Big Island. Consider factors such as population growth, tourism trends, infrastructure developments, and government policies that may affect property values and demand.

8. Financing Options and Interest Rates:

Evaluate financing options and interest rates available for commercial property investments. Consider the terms, down payment requirements, and potential impact on cash flow. Assess the feasibility of obtaining financing and the impact of interest rates on the investment's overall profitability.

When investing in commercial real estate properties on the Big Island of Hawaii, it's crucial to consider various financial metrics and numbers. Cap rates, cash flow, occupancy rates, rental rates, lease terms, ROI, operating expenses, market trends, and financing options are all key factors to analyze. Conduct thorough due diligence, consult with professionals, and carefully evaluate these numbers to make informed investment decisions and maximize the potential returns on your commercial property investment.

Chiaki Yamada REALTOR® | Broker

cyamada@kwcommercial.com

808-937-6789 Mobile | Text