Hi all, I wholesale in Arkansas and have stubbled on an awesome lead for a small resort. Main cabin house with 16 motel style units on 5 acres, needs updating but all structures in fair condition. Seller is motivated! I have spoken with them several times but am fixing to drop the ball because I can't figure out to put a accurate value on this investment! Any advice on how to run the numbers for this type of commerical property?
I don't have much commercial experience, but my understanding is that financing and appraisal on commercial properties is based more on the income the property can or is currently generating. I would reach out to a commercial lender for help.
@Carah Hanley as with any commercial property, there are 3 ways, comps, cap rate based on Net operating income and replacement cost. Since this sounds like a unique property comps are partially out. If the units are vacant and there is no income, cap rate is out, leaving replacement cost. What would it cost to buy an equivalent parcel of land and build something similar? Then figure out how much it would cost to repair the units and estimate the income, expenses and local cap rate for this asset type and you have a proforma NOi and selling price aka ARV. Hope this gives you a general idea of how to value the property. Good luck
That is great info! Thank you kindly
@Carah Hanley If it is in NWA, my team and I can help. You will end up looking at in with two approaches. 1. a broker, or appraiser can get your comparable sales in the area to see what others are buying similar properties for. however the 2nd option is the best option and is really what a bank cares about. That is the income approach. You will look at it two ways there and take the current P&L and then Potential and what you can get out of it. @Ken Naim is exactly correct. The best way is take the NOI and dividing that by your local cap rate. That will give you the price of what things are selling for the area.
Having the end in mind is key. What are you wanting to do with it and how much will it make with you executing that plan.
Knowledge is so valuable. Thank you! There is a lot of data available for me to make a solid projected NOI and I understand what a cap rate is and how to calculate it BUT no idea what the LOCAL cap rate is for North Central Arkansas. Any help on where this information can be found is much appreciated.
@Carah Hanley a Real estate broker will be the best info for that, but I may be able to look it up on Costar. Would you run it like a hotel/motel or would it be more like Multi-family?
@Carah Hanley ask a commercial broker or three in the area. And ask any commercial agent with national costar access agent that your friendly with to pull report on that submarket, property type and class.
Wow, I didn't get a chance to look at this for a few days while life was throwing curve balls. I am very happy I asked for help, both of your insights are amazing! @Ken Naim @Ryan Blackstone
Thank you! I am looking to understand the local cap rate for a motel/hotel. I can send you a direct message.