In 2024, there are currently over two and a half million commercial properties in the U.S., which explains the need for property valuation.
Receiving an accurate evaluation helps investors make key decisions and avoid issues like higher vacancy rates. But the world of real estate can feel overwhelming when you're unfamiliar with the jargon and practices.
Luckily, we've got the answers you're searching for. Here's how to conduct a thorough commercial property valuation.
Income Capitalization Approach
For Tampa property evaluation, the income capitalization method is widely used.
To crunch the numbers, focus on the commercial property's net operating income (NOI) and cap rate to figure out its profitability. The NOI is how much you earn after expenses whereas the capitalization rate is the expected ROI
Once you have both, divide the NOI by the cap rate to see what the property is worth regarding income potential.
Gross Rent Multiplier (GRM)
Another popular choice is the gross rent multiplier approach. It looks at the relationship between the property's price and how much it generates. The GRM is calculated by dividing the commercial property's sale price by the annual gross rental income.
Taking this approach helps investors discover commercial properties that have been priced low compared to their potential, which is useful for real estate market analysis.
Sales Comparison Approach
One of the top commercial appraisal techniques is the sales comparison approach. As the name suggests, this approach estimates a property's value by comparing it to others sold in the same area. Yet investors must take various factors into consideration such as the physical characteristics and how much cash flow the commercial property produces.
Cost Approach
Another key investment value assessment is the cost approach. To determine the cost, you figure out how much it would cost to replace the building by looking at construction costs and the materials.
We often reserve the cost approach for newer properties where there aren't any comparable sales in the area.
Seek Professional Advice
Aside from securing property management in Tampa, investors should hire a professional appraiser from the start. These professionals have the experience and credentials to value properties accurately and ethically, giving investors peace of mind. If you're unsure of how to find one, contact real estate agents, your property manager, or other business owners who have recently had their commercial property appraised.
During the appraisal process, appraisers dig into public records and research the area's demographics as a starting point. They also look at the current market and evaluate similar income-producing properties to calculate their value.
Top Commercial Property Valuation Options
Now that you're familiar with the different commercial property valuation options, it'll be easier to find the right one for you or even choose several. Using different ones will give you a better assessment of the commercial property and where you stand financially.
At PMI MetroBay, we understand that this part of real estate can be tricky, which is why our team of experts is ready to help. If you're in Tampa, FL and are looking for guidance, we'd love to hear from you. Reach out to us today to chat with a member of our team.
