The property assessment rate for Boulder commercial properties increased by 41% compared to the last assessment period. However, this is an average rate. The actual value of a commercial property can vary from area to area.
How can you learn the true value of your commercial property investments? You need to perform a commercial property valuation. This can help you learn what you can make off investing in real estate of the commercial variety.
There are a few ways you can do this. Read on to learn about three of these.
Cost Approach
This method tells investors how much replacing a building will cost. Investors who use this method don't necessarily want to replace a building. It just helps investors consider important aspects like land and construction material value.
When to Use It
The Cost Approach Method is most used when a sales comparison approach is impossible. This may happen when a property has unique features. It can also happen when upgraded structures make a piece of land more valuable.
Formula
Once you figure out these values, use the following formula: Acquisition Cost - (Land Value + Construction Material Value) = x. If the x is positive, you have a good deal. If it's negative, you aren't getting a good deal.
Gross Rent Multiplier
How long will it take you to start seeing an ROI on a property? The Gross Rent Multiplier (GRM) will help you figure this out. This is a ratio of a property's total price divided by annual rent revenues.
Formula
This is the formula you should use: Acquisition Cost/Annual Gross Rent = Gross Rent Multiplier. If you purchase a building for $200,000 and make $20,000 a year in rent, you'll get a GRM of 10. Check your finances to see if you can or can't wait 10 years to make a profit.
Reverse Formula
You can also use this formula in reverse. Say you want a property to pay for itself in 7 years. You can multiply this by an expected annual rate to learn the acquisition cost you can afford.
Sales Comparison
Are there other commercial properties in the area that are similar to your own? That is, do these other properties have sizes, locations, construction types, etc. that are similar to your property? If so, you can look at the sales values of those properties to determine the value of your properties.
Formula
Look at the final acquisition value of recently sold similar properties. Determine their value per square footage. Then use the formula: Square footage Value of Other Property x Size of Your Property = Fair Property Value.
Good or Bad Deal
Does the acquisition price fall below this fair property value? If so, the property is probably a good deal.
Try Our Commercial Property Valuation
This should help you choose the most valuable commercial property investments. Being able to estimate this makes it more likely you'll find success when investing in real estate.
If you need further help with a commercial property valuation, hire us at PMI Coal Creek. Our property management experts can help. Get in touch by filling out the form on this page.
