How to determine value of commercial properties

Question

Hey BP,

I got 2 good leads yesterday on commercial properties in Montgomery and Bucks counties in Pennsylvania.  I am not familiar with commercial real estate and was hoping I could find someone on here with expertise or some knowledge in the area.

-How do you determine the value of each lot?

-Is it possible to wholesale commercial properties?

-What are commercial investors looking for in regards to ROI?

Thanks

Bill Gulley · Answer

You are elephant hunting with a BB gun, you need to get out of the jungle and learn real estate.

Your questions are so vague they can't be answered without writing several books.

Land is always valued with the market approach unless it yields income without improvements, then the income approach may also be considered. :)

John Casmon · Answer

@Shawn Connors To the point being made by @Bill Gulley, there are probably a lot of variables that can't be fully covered in a single thread. If you're not familiar with commercial real estate, how can you determine if they are good leads? I'm not well versed on land development or wholesaling, but I'd suggest finding someone who focuses on commercial real estate and/or land development and talking to them about the market. Ask them what they look for and then ask them if they buy wholesale deals. At a minimum you get to learn a bit without hurting your rep trying to wholesale what may be a terrible deal.

Karen Schimpf · Answer

@Shawn Connors if you are not familiar with commercial real estate why start with such a hard project? If you are going to get into commercial real estate maybe start with a small apartment or office building that is cash flowing.

Account Closed · Answer

Land has many different ways to be valued. Sales comparison is the most common from an appraisal perspective but  i would suggest that you consider the following two strategies in assessing whether it makes sense  as an investment:

1. If the site has an immediate development potential, then the analysis is simple. Value the completed project and subtract all the cost to get there including a development/Entrepreneurial profit.  What you have left over is the residual land value.

2. Speculation land is much harder to value, especially if you are looking to re-zone or get entitlements. Spec land is a stair step investment, in other words the value may stay the same for many years and then skyrocket. It seldom is linear where if you buy it today, next year it goes up 2% and the the next year another 2% and so on. In fact, land may actually drop in value before increasing.

I would heavily not recommend you buying spec land unless you have lots of experience on where the market is going  or are buying for a very long term hold ( greater than 10 years). Keep in mind that taxes and insurance not to mention mortgage interest will all be negative during your hold,

Shawn Connors · Answer

@Bill Gulley

Thanks Bill

How to determine value of commercial properties

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