Determining the real value??


#1

So, this is a deal I’m considering… it’s a small commercial property, currently occupied by the owner, who’s running a truck accessories store. He has the property listed for $229,000 on craigslist. I believe he plans on closing up shop after a sale, and just retiring. So the property will likely be vacant. Anyways, what I’m wondering, is how do I determine the true value of this property. Do I just call up a commercial realtor, and ask him what the going price per square foot in that part of town is?

I’m thinking that ideally, this deal might be a candidate for a master lease agreement, since I’m guessing whatever its value now is, once the property is vacant its going to be worth less until I get a tenant in there, right??

Any tips??


#2

My advice would be to stay away from commercial retail. I’m not a fan of it. I’d rather look at residential commercial property. With commercial, the value is usually determined by the income it produces. You could also see what the average price per sq. ft is in the area, and use that as a gauge.


#3

I’m not a real fan of commercial retail either, but probably because I’m not as comfortable with it. In general, though, the value is determined as a multiple of the net operating income - that multiple is called the cap rate. You can ask the broker for a list of comps, or at least their opinion of what the going cap rate is in that area.

Once you get and analyze the financials and determine the net operating income, you can apply the cap rate to determine the fair market value.

But who wants to buy at fair market -:wink:

If you don’t have the cap rate, then apply your own investment criteria to the deal. Do you want a 10% cash on cash return? Maybe more? Use that to drive the deal.

Doing due diligence and determining value is complex, but I hope this little bit helps.

Michael


#4

You can consider calling up a commercial realtor but only if they’re reliable and accurate with their figures. Be sure to cross check, afterwards