Commercial Real Estate Valuation - What Investors Need to Know

 Posted on December 00, 0000 in Commercial Real Estate

Although there are many aspects that go into determining a commercial real estate investor's overall return on investment (ROI), the valuation of each property is one of the cornerstones. What do you need to know about property valuation to improve your overall ROI in commercial real estate (CRE), and how can a seasoned real estate lawyer help? The following explains.

There is More Than One Way to Valuate a Property 

Property valuations are not as cut and dry as some might like you to believe. Instead, there are multiple approaches that one can use to determine what their final ROI on a property might be.

The first is the cost approach, which examines the amount of money that it might take to procure a property and, if necessary, rebuild it. This is typically used for unique properties, as well as those that need or have undergone extensive repairs or upgrades.

The second valuation method is the income capitalization approach. Based on the amount of money that an investor is likely to derive from a specific property, this valuation method takes a wide range of issues into account - everything from the possible cost of utilities and maintenance to the sale cost of the building or property in question.

Another commonly used valuation method is the sales comparison approach (also known as the market approach). In this method, you rely heavily on the recent sales of other, like properties. Though generally one of the least reliable approaches, it can be rather effective when in the midst of a slow market or economic downturn.

Investors who plan to hold onto their properties as rentals often use a valuation method known as the gross rent multiplier. It essentially tells you when the property will have “paid for itself,” and when you can expect to start seeing returns.

The value per door process may be one of the least used valuation methods, but it can be highly effective for those who plan to purchase a multi-tenant property. It breaks down the total worth of the building and then determining how much an investor should expect to see, per door (or per tenant). This approach can help the investor determine if the rental prices needed for a positive ROI are on par with similar, nearby properties.

Our Naperville Commercial Real Estate Lawyers Can Help

Property valuation is an inherently complex process, and a mistake can cost your company dearly. Avoid such issues by employing the aid of a seasoned Naperville commercial real estate attorney. Call 630-778-3818 and schedule a personalized, no-obligation consultation with Lindell & Tessitore, P.C. today.

Source:

https://azbigmedia.com/a-guide-to-commercial-property-valuation/