A guide to commercial property valuation

Real Estate | 7 May |

All you need to know about commercial real estate valuation so that you can find the value of your business property.

The commercial real estate market is currently worth approximately $10 trillion.

If you’ve been interested in investing in real estate and want to go the commercial route, now is the time to take action.

Whether you want to purchase property for your own business or purchase property and rent it out, one of the most important things you need to do is figure out what your property is worth. This information will come in very handy when the time comes to sell your property, too.

Read on to learn some tips on commercial real estate valuation that will help you figure out how much your property is worth.

Calculating Commercial Real Estate Valuation

When it comes to calculating commercial real estate valuation, there are lots of different strategies you can use.

The following are some of the most popular strategies. Major real estate companies use these methods and you can, too:

Cost Approach

This method takes into account the amount of money it would cost to rebuild a property from the ground up. It factors in things like the current cost of land and the cost of construction materials.

The cost approach is a good option to consider when it’s hard to locate a comparable property.

For very unique, one-of-a-kind buildings, as well as those that have undergone significant upgrades and improvements, this is a fairer way of determining value than some of these other methods.

Income Capitalization Approach

Another option to consider is the income capitalization approach.

This approach is based on the amount of money an investor is likely to derive from a specific property.

A lot of work goes into determining this number.

For example, you’ll need to compare the property to similar properties in the area. You’ll also need to factor in decreases in income based on maintenance costs and other necessary expenses.

Sales Comparison Approach

This approach is also known as the market approach. When you use this method to find the value of your property, you rely heavily on recent sales of similar properties.

This approach often gets used when determining the valuation of apartment buildings.

It can be very effective, but it’s not always reliable, especially during slow market times. Depending on the state of the market, it can be hard to find similar property sales for comparison.

Gross Rent Multiplier

This method takes the price of a property and divides it by that property’s gross income. 

Essentially, it tells you how long it would take for a property to “pay for itself” with its top-line revenue.

This method often gets used when identifying properties that have a price that’s very low relative to their income potential.

Value Per Door

Last but not least is the value per door method.

This is not as popular as some of the other methods on this list. It can be useful, though, for folks who need help determining the valuation of an apartment building.

This method breaks down the worth of a building based on the number of units it contains. For example, a $5 million building with 20 apartments would have a value of 250,000 per door. 

Tips for Buying and Selling Commercial Real Estate

As you can see, there are many different ways to go about valuing commercial real estate.

Now that you have this information in mind, are you ready to proceed with your purchase? Or, are you still confused about how commercial real estate investing and sales works? 

If you fall into the latter category, these tips for buying and selling commercial real estate will be very valuable to you:

Consider the Location

Location always plays a big role in determining whether or not you should buy a particular property.

The location will also be a factor when you’re trying to sell a property later on.

Be very particular about where you buy a property and think about how the neighborhood will affect its resale value.

Consider Local Laws

Make sure that, legally, you’re able to use the property your buying for its intended purpose.

Are there rules regarding the types of businesses that can operate in the area? Are you allowed to build an apartment building in a specific neighborhood?

Find all this out before you invest a ton of money in a property.

Work with a Team

When it comes to buying and selling commercial property, it’s best to work with a team.

You ought to have a commercial real estate broker, a mortgage broker, and an accountant on your team at the very least. You should also have a good lawyer on your side.

Have Your Property Appraised

It’s important to be aware of the appraisal process and make sure you have your property appraised to make sure you’re paying (or selling it for) a fair price.

You can visit this page to learn more about appraisals and how to find the best person to handle them for you.

Be Patient

Finally, remember to be patient.

The process of buying and selling commercial property can be a long one, and it takes a while to dot all the I’s and cross all the T’s.

Don’t rush into any decisions that aren’t fully formed just because you’re eager to get your business going or start renting out your property to tenants.

Learn More About Commercial Real Estate Today

Now that you know more about determining commercial real estate valuation and figuring out how much your property is worth, you can make sure you’re not paying more than you should.

You can also use this information to make sure you get a fair price for your property when you decide to sell. 

Property valuation calculations are a big part of the commercial real estate business. There’s much more to learn, though.

Do you want to learn more about commercial real estate?

Whether you want to stay informed about the latest commercial real estate news or you want tips on investing, we’ve got resources for you.

Head to the Commercial Real Estate section of our site today for more information.

Show Buttons
Hide Buttons