How to Value Commercial Real Estate [The 4 Main Ways]
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- เผยแพร่เมื่อ 9 ก.ค. 2024
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Today, we’re going to be talking about the 4 main ways that commercial real estate is valued. When determining the value of residential real estate, investors have a pretty easy time. You simply log into the MLS or check Zillow for comparable properties in the area and utilize the price per square foot to determine the value of the asset you’re reviewing. Analyzing commercial real estate, on the other hand, isn’t quite as simple.
There are four common ways to determine the value of commercial real estate:
Sales comps
Cap rates
Replacement costs
Gross rent multiplier
So, here’s how to determine the value of commercial real estate.
Interested in some aspect of commercial real estate that I haven't discussed yet? Please let me know in the comments!
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Tyler Cauble is Founding Principal and President of The Cauble Group, an East Nashville-based commercial real estate brokerage serving the Greater Nashville Area. He's a native Nashvillian that has not only been a witness to the city's tremendous growth, but is also involved in it through his developments, renovation projects, and volunteer work.
As President of The Cauble Group, Tyler helps bring together buyers, sellers, landlords, and tenants in retail, office, industrial, and multi-family real estate. He’s committed to helping business owners understand the market so that they can grow their business and be part of Nashville’s future. Cauble is also the best-selling author of Open For Business: The Insider's Guide to Leasing Commercial Real Estate.
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Here we go, found the video. Thanks again Tyler ^^
hicham farid awesome! Hope that helps
Great info as always Bro! 💪🏾🔥
Appreciate it! Let's gooooo
Great Video! Well explained. Thank you
Glad you liked it!
Great video - thanks so much for your insight!
Glad you enjoyed it! Thanks for watching, William
2:11 where do you get the purchase price from? what the original owner bought it for or what the realtor or owner wants to sell it for?
Very informative, thanks!
Glad you enjoyed it!
Hey Brother thank you for the advice.
Absolutely, Eron!
Can you Please make the video on determining, studying different cycles of market and can you also provide us with different case studies of your investments that made your profits on?
Loving your videos.. 👍
Hi Amod! We have a market cycles video in the queue! May be a little bit before we get to it, but it’s coming 😁 I’m happy to give a case study on one of my investments - we’re finalizing some updates on one now and once that’s done I’ll share it with you
Well done
Appreciate it
What would you say is the average desired cap rate for investors in the case we're looking to flip an abandoned commercial space into retail plaza and lease it and sell it?
It’s tough to say because it depends on the market, the condition of the property, the income and the vacancy that it currently has, and so many more factors. If you get all credit tenants, it could be 5%, if you do all local and still have some vacancy it could be 7%. Unfortunately, there’s no easy way to determine that unless you have a plan in place
Can you do a video of you doing a CMA on a commercial property on the MLS.
I actually don't have access to the MLS since I'm not a Realtor
Is there a calculation for raising the appraisal value by raising the rents? For example, I bought an 8 unit building for 650k and all the rents were 850 and I raised the rents to 900? Does that correlate to a certain raise in value?
Yes - it absolutely does. You’ll want to apply the market cap rate for that type of product to the new NOI to see the value you’ve created!
Do you receive financial compensation from CRS data to mention their products?
Haha I wish! It’s a product that we actually use
Tips for valuation of unique properties like treehouses and international beachfront?
I would look at past financials and underwrite to a cap rate that you feel comfortable with. There won't be enough comps out there to really get a good feel and since they're unique, they'll be a bit more risky
Im an owner operator looking at potentially going from renting to purchasing.....We only use the property for storage. There is a place down the road from me that is for sale. Next to a homeless camp and almost burned up just this summer. High risk. Its 10,500sqft. Has 4 meters already so 4 different addresses or potential rental property. No one has occupied this location for years now. Primarily due to the homeless camp. Clearly I would need Large aggressive fencing, and security installed.....I know most would say heck no. But I see it as a way to drive the cost of the building way down....And we are not looking for foot traffic customers.....But I have no idea how to value this building. The location pretty much changes everything. And they is no other buildings that have sold by this homeless camp.
I would strongly recommend hiring a commercial real estate broker in the area to represent you in the deal. They would be able to pull comps in the neighborhood to show you what it's worth and ensure that you go through the due diligence process properly. Here's a video I did on the 13 questions to ask when interviewing a potential real estate rep: th-cam.com/video/gcVdLjHFN50/w-d-xo.html
annual net revenue for each floors or for all floors - total purchase price= cap rate
Divided by the purchase price, but yes!
(Net Revenue) / (Purchase Price) = Cap Rate
Wondering how to value a specific property? Leave me a question below!
Tyler Cauble how is price per square foot determined?
Kenneth - price per square foot is determined by the supply and demand within a market. Best way to determine the going rate on price per square foot in your area is to find vacant properties that have recently sold that are similar to what you’re looking into and you should get an idea of value from there!
I'm in Nashville ! Do you consult people on best building to build on commercial land?
If so, how?
Hi Adam - yes, we’d be happy to do so. Please reach out to office@thecaublegroup.com
my only issue is understanding how to get the price per square foot so I can do the math??? what's the math on that when you have time... thanks
I am about to close on my first commercial property, it is in a small city south of columbus ohio. I am having a hard time figuring out what to charge for rent. I can't find any similar buildings like this one for rent, it is a 1000 sqrf family restaurant/bar.
Congratulations! Have you reached out to local commercial real estate brokers in the area that are currently working on leasing assignments?
thank you for that advice, I was able to connect a local commercial broker and he said our local area is running around $10-$12 a sqft. I really appreciate you and I like your videos.
Happy to help anytime, let me know how the deal goes!
would we be able to schedule an interview
What kind of interview?
How do I price a church?!
That’s a tough one because they’re such unique properties. I’d look up church sales in the area and see how the comps shake out
I've just launched a FREE crash course on commercial real estate investing for beginners. Check it out at www.tylercauble.com/course