Commercial real estate investment

4 Replies

This is a very ambiguous question, but I'll take the challenge.

Commercial properties are valued very similarly to rental homes. Value of the property is composed of intrinsic property value and the value based on cash flow.

How much you invest in the property and how much you sell it for are related but separate. They're related in that the repairs will increase property value, and if you do it right, that increase will be greater than the amount you invested in improvements. However, the market will set the sale price, and the market doesn't really care how much you invested in to the deal.

You'll need two things for determining sale price - a market survey of recent sales and an operating pro forma. The market survey will give you price per sq. ft. and cap rates. You can then apply the market average cap rate to the operating proforma for the cash flow value.

I would recommend engaging a broker to do a lot of this work for you. They'll usually do it for free in a broker opinion of value (BOV) or broker price opinion (BPO). This is a service to show off their quality of work in an effort to win your business.

@Leander Sheppard Commercial properties are valued based on the income they provide. This may be tough to figure if it is vacant and or needs repairs. A good commercial broker can help. Don't expect a real estate agent that primarily sells SFHs to be much help.

One way to sell is via auction. Let the market decide the value. EHile you may not get top dollar it can be a hassle free way to sell. A good auctioneer may even get you top dollar as the frenzy of bidding can drive people to bid more than they planned.