Browsing: commercial property

Commercial Real Estate Developing Real Estate: How to Price Land for Profit

Pricing land for development can be a daunting task for the untrained investor. As a niche subset of both residential and commercial real estate, using comparables for land can be as dangerous to a developer as it is mysterious, sometimes causing the failure of what was certain to be a fantastic development.

However, for the savvy investor, there is one universally accepted land valuation method used by development professionals, corporations, and appraisers alike; the Land Residual Method. By using this method you will be able to determine the current and future value of any piece of land, whether its use be residential or commercial. You will also be able to price land, such that any development you propose will have built in profit. With some practice, you will be able to employ the land residual method in just a few moments, summing up the value of almost any property just on sight.

The land residual method has a fancy sounding name, but to use it all you need is an understanding of some simple math. The land residual method is a calculation that takes the highest and best use of a particular piece of property and subtracts out the total cost of development to arrive at the residual value: the land value. Once you have the numbers it’s that easy. “How do you get the numbers?” You ask. It takes some research, but even a novice investor can figure it out relatively quickly.

For the sake of this article I’ll be speaking to residential single family development or single family lot land. Rest assured, commercial development uses the same principles, though the calculations are a little more in depth.

Commercial Real Estate

Due to easy, high leverage financing and falling commercial real estate values many apartment building owners are now facing foreclosure. This leaves a lot of opportunity for those apartment building investors who are willing to invest the time and energy into finding a great apartment building investment at a rock bottom price. It can be difficult to find listings of apartment building foreclosures because in many cases they are handed over to commercial Realtors who may not even advertise the apartment building as a foreclosure.

Fortunately, the internet has a large number of websites which feature apartment building foreclosure listings, however, none of these websites is devoted solely to multifamily properties. Therefore it is necessary to visit a number of different websites and do some searching within the websites themselves. Below are some websites where you can begin your search.

Sources for Foreclosed Commercial Real Estate

Commercial Real Estate

Executive summaries are one of the most important aspects of commercial loan package submission, however, many new investors spend the least time and energy on this essential component.  I recently had the opportunity to interview Lori McMahon of LJ Commercial Property Services.  She creates and submits executive summaries as her profession and is considered to be an expert in the field.  Below is a list of questions and answers exchanged by a new commercial real estate investor and Lori.

Commercial Executive Summary Q & A

1. Q: At what point do you begin putting together the Executive Summary? Before/during/after contract has been submitted?

Lori: It’s different every time. Before is fine as long we put that in as the status on the Funding Opportunity Page. Many of clients have wanted to find out if they could get any interest prior to signing the Contract to Purchase. Anytime is good as long as it is directly after you sign the contract because you must understand that in these times, it is taking anywhere from 45 to 90 days for funding…