Help! Analyzing commercial propert

[Tony Velez]

Can someone point me in the right direction on analyzing a commercial property? This property is from 1966 8 unit. It's been owned by the same family for decades. The rents are well under market value and the building is well maintained. The pro forma is for market rents not the actual rents. Even though they did follow up with an actual rent roll. I know we are not supposed to value a property from its potential NOI. How can I price this out accurate not knowing the a tail cap rates of the neighborhood? Any suggestions?

Thank you 

Tony V

[Account Closed]

Originally posted by @Tony Velez:

I read somewhere I should only make an offer on the income it generates now. Never make an offer on the potential income. 

Tony, Tony, Tony.  You definitely want to know the value of the property when it is performing to market.  I am assuming there are no long term leases.  You would definitely pay more for a property that has more upside.

The way to value the property is to capitalize the fully performing NOI and then adjust below the line ALL expenses to get to that point. This would include lost rents, lease up costs, and risk. You would also credit for variable expenses that will be lower while the occupancy is less.