How Do You Calculate the Value of a Commercial Property?
Calculating the value of a commercial property is a key step in determining whether it’s a sound investment. Several methods can be used depending on the type of property and available data.
Key Valuation Methods:
- Income Approach: The most common method, especially for rental properties, uses this formula:
- Value = Net Operating Income (NOI) / Capitalization RateFor example, if a property generates $100,000 annually in NOI and the cap rate is 5%, the property value is $2,000,000.
- Sales Comparison Approach: This method compares the property to similar properties recently sold in the area, adjusting for size, location, and amenities.
- Cost Approach: For new or unique properties, this method calculates the cost of land plus the replacement cost of constructing the building, minus depreciation.
Key Factors in Valuation:
- Location
- Market conditions
- Property type
- Current and future income potential
Pro Tip:
Work with a professional appraiser or use tools like CoStar to ensure accurate property valuation.
#CommercialRealEstate #PropertyValuation #RealEstateInvesting #NetOperatingIncome #CapRates #CRETips
You may also be interested in
.png)
.jpg)
Justin Ferguson is a Multifamily Specialist in Marcus & Millichap's Southern Virginia Office. He prides himself in helping corporate professionals, private investors, REITS, developers, and syndicators strategize and maximize their returns to grow their portfolios at faster, more efficient rates.