Best Ways To Evaluate The Price of Commercial Property
Valuating commercial property is not very easy and sometimes can be extremely difficult without knowing enough about the history of the property or what the future might hold for the surrounding area. Bringing in a property manager that has experience with your piece of real estate or clients with similar investments is a great way to begin the process of evaluating the price of commercial property in and around the Toronto area.
To better comprehend how the price for a commercial property is determined, you will want to understand the definition of value. Value for commercial real estate can be described as the expected price that a property should yield in a fair market with scrupulous buyers and sellers. For our purposes this can also be summed by saying a property has value when it can generate income that covers all the expenses required with standard upkeep, while reducing the overall debt needed to purchase the property.
There are formulas that you can discuss with your accountant and property manager to make sure you can get a good idea of the value for your property, and some of them can be very complicated, but they basically amount to our gross expected income, minus vacancies, losses and operating expenses to arrive at your net operating income. When you have that figure and determine if it will be enough to support the investment, you are well on your way to valuating the commercial property.
Other points to consider would be the location, price per square foot, cost per unit, the capitalization rate or ROI. Many of these figures can be calculated by your account with previous building records and data that can be culled from many public websites. All of these are tools that you and your team of advisors can use to evaluate the price of commercial property. Although the numbers are black and white, the knowledge that an experienced property manager brings to the table is less quantifiable, but nonetheless valuable.
For instance, your accountant can give you a pretty good idea of when you will begin to turn a profit on your commercial real estate property based on the number of tenants with leases and the average operating expenses, but they cannot tell you what the real estate trends are doing in a 1, 2 or 5 mile radius of the building, whereas a property manager is trained to understand and note these value shifts. They can also tell you if commerce is coming into the area or going away, which can be another key predictor of future value.
Overall the savvy investor will rely on trained professionals in the accounting and real estate fields to help them come to a reasonable price for potential commercial property, and a property manager with local knowledge of the property or surrounding area will be able to provide valuable insight into the overall marketability and opportunity to maximize tenant occupancy. These folks will help you make an educated decision about potential real estate and give you a good idea of how to evaluate the price of commercial property.