Understanding the Commercial Evaluation process

 

Evaluation of the “market value” of a commercial property is as simple as it is complicated. Essentially one needs to develop the relationship between income and expenses and establish the NOI (net operating income), then apply the return on investment you require from the property. What you include or exclude from the income statement/expenses plays a big role in the evaluation. Management factors, bad debt and often a vacancy factor have to be considered.

 

Simple Example:
Property generates a NOI of $20,000.00 annually
Required cap rate is 7% -
“Market value” or the offer price would be calculated as follows:
$280,000.00 or $20,000.00 divided by a factor of 7

 

Required cap rate of 8% -
$255,000.00 or $20,000.00 divided by a factor of 8

 

The more subtle and less tangible aspect of deriving Market Value takes the “romance” of the property into the equation, including a review of the land value, consideration of the influence of traffic flow, residential influence, replacement value of the structure and the general state of repair/maintenance of the building.

 

Are you considering investing in an income property?
Are you considering purchasing from an owner occupied position?
Do you own a property or land and need advice on current market value?

 

We would be pleased to meet and review your wants and needs, help you make an informed decision.