The second myth about commercial real estate is that when it comes to real estate investment, it's better to invest in residential real estate-especially when you're a newbie.
Myths About Buying Commercial Investments
The income approach is often given primary emphasis when appraising a commercial real estate used to generate income. It appears easy to correctly prepare an income approach analysis for commercial real estate.
Commercial income properties can be valued based on the leased fee estate. Valuation of the leased fee estate is more appropriate for properties with above market or below market rents. Valuing it using market rental rates would overstate its market value.
Accurate data is the basis of a reliable income approach conclusion. This includes information on rental rates, occupancy rates, new construction, absorption, operating expenses and capitalization rates. Rental rates are usually obtained from rental comparables, subject property leases and aggregate market data.
Market Value = NOI / Cap Rate
NOI is net operating income. Cap rate is capitalization rate.
Market Value = Gross Possible Rent x GRM
It is abstracted from market data and discussions with market participants.The formula for EGRIM is: Market Value = effective gross income x EGIM
Effective gross income is abstracted from market data and discussions with market participants.
The income approach is often given primary emphasis in appraising income properties.
Commercial Real Estate Appraisals Gift Tax Valuations Renovation / Upgrading Cost Benefit Analysis
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