When it comes to finding the value of commercial property, it's easier than you might think. It's actually easier than finding the value of a residential property. The only consideration that you need to think about when finding the value of a commercial property is the ROI or Return on Investment.
If the properties return on investment is the same as or more than the average of other properties in the area then the asking price is too high, but if the return on the investment is lower than the asking price is okay. The other thing is figuring out the gross rent multiplier, this will help you in figuring out if the asking is price is about the same as other properties in the area.
Finding the Gross Rental Multiplier
One of the first things that you need to do is find out the gross rent multiplier of other properties. The more properties you can find the better it will be for you. The easiest way to find out the information that you are looking for is by going through the realty company the property is listed under. For every property that you look at you will need to take the annual gross rent and divide that by the asking price. So for example if the asking price is $200,000 and the annual gross income is 20,000 then you would divide those and get the gross rental multiplier. So, let's say that you looked at a total of nine different properties and the average gross rental multiplier is 6.
Calculating the Gross Rental Multiplier for Your Property
Now you need to find the gross rental multiplier for your property. So let's say that your asking price is $300,000 and the annual gross rent is $40,000. This means that you gross rental multiplier is 7.5, and this is more than any other property in the area.
Finding the Right Value
Now that you know your gross rental multiplier is more than the average, you will have to figure out what is the best price for the property. You will need to take the annual gross rent and multiply by the average. This will give an amount that is right for the property in the area you are looking at.
Conclusion
The best thing for you to do is make sure that your cash is going to be more than mortgage, this way you will have enough money left over for any additional expenses. Additional expenses will pop up sooner or later, so you need to make sure that you have a cushion for when this happens. Make sure to look for the properties expense records, this way you can see if the properties expenses are more than half of your income. If they are more than half then you should think about finding a different property. Before you get any property make sure that you check everything over carefully and then you find the property value accurately so that you know if you are getting the best property you can.
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