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April 01 2016


How to Quickly Determine the Value of Commercial Property available for sale

The value of a commercial property for sale is determined by using some simple formulas which can be based upon the amount of net operating income the property produces every year. So when you are looking at a commercial property for sale, among the first things that you'll want to ask the broker for may be the profit and loss statement. CT hub Singapore

Some brokers who've listed a commercial property available may refer to this profit and loss statement as an IPOD, or income property operating data sheet. Once you get the IPOD, or profit and loss statement, you can then compare the information given by the broker or seller to your other sources to help determine what the real numbers are. The challenge when looking at any commercial property for sale is that the broker and/or owner will usually tend to exaggerate the quantity of income that the commercial property on the market produces while also attempting to minimize the amount of operating expenses which are reported.

How to Determine the price of a Property for Sale

The reason behind this is simple. The value of any commercial real estate is dependant on the amount of net operating income the property creates each year. In reality, each additional dollar of annual income enhances the value of the property by roughly ten dollars, depending on where the property is located, and how old it's. Note that this extra net gain can come from either getting additional revenue in rents, or from reducing expenses by managing the property more efficiently.

Once you discover that owners of commercial property will tend to present unrealistic numbers in an attempt to get a higher price because of their property you'll get to know why it's necessary when examining any commercial property for sale to get to know the market you might be investing in. When you know exactly what the rental rates in an area tend to be or what the typical expense ratios are for a twenty-five year old apartment building then it is much harder for the broker or person who owns a commercial property for sale to attempt to pull the wool over up your eyes.

Verifying the Income and Expenses

The first task in verifying the income of a commercial property programs are amazing to ask for the rent roll. The rent roll is often a list of what each apartment, self storage space, mobile home lot, or a workplace rents for. Make certain you get the actual rent roll for the reason that owner or broker of the commercial property available for sale may try to give you a Pro-forma rent roll rather than actual rent roll. Pro-forma implies that there is an expectation, realistic or otherwise not, of getting higher rents than the property is currently getting. My reply to this has always been, "If you improve the rents up to match the pro-forma, then we'll use the higher income amounts, otherwise we will base our valuation on what the property is currently producing in income.

When looking at the expenses from a commercial property on the market, remember that you're attempting to come up with the actual amount it will cost you to operate the property rather than what the seller's expenses are already. So while it's necessary to know exactly what the seller's costs are already, I've learned NOT to rely on the information given by the seller when looking at an advert property for sale since this information is almost always inaccurate.

A straightforward Formula to Use for Expenses

The expenses will vary depending on the type and age of the commercial property for sale. For example, if you are looking at purchasing a Class C apartment building which can be at least twenty-five years old, then the expenses will run between 45 to 1 / 2 of the collected income every month. The collected income, known as the Effective Gross Income, is what remains after the cost of vacancies are subtracted from your total amount of rents on the rent roll in the commercial property for sale.

The final step in determining the price of a commercial property for sale is to divide the net operating income from the capitalization rate, which is different from about 6 to 12 percent with respect to the type of property, the age, and the location in the commercial property available. The fastest way to get a perception of what capitalization rate you need to be using when looking at a commercial property for sale is to question another broker who isn't involved in the transaction.

Using Escape Clauses to Limit Your Risk

Amazing protecting yourself when thinking about any property programs are amazing to make sure that your purchase contract gives you a period of time to get out of the sale if you are not comfortable with whatever you find. Done properly, you can often tie up a property for 60 to 3 months so that you have time to accurately determine the actual value. This makes it better to look at commercial real estate, because you can get out if you have the right escape clauses. CT hub Singapore

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