Here in the United States, “fair market value” on any item is determined by what a buyer is willing to pay a seller for the item. Simply put, if I have a stick of gum, and I offer it to you for ten cents, and you want to purchase it for ten cents, then the fair market value of the stick of gum is ten cents.

While real estate also has a fair market value, it is a bit harder to determine because of all the factors which go into the valuation. A property, unlike the simple stick of gum in the above example, has multiple aspects for a seller and buyer to put different valuations on. Introduce a lender into the picture, and then you have a third option on valuation to deal with as well.

Determining commercial property market value is different than determining market value for a residential property. In a residential valuation you can simply look at other recent comparable sales in the area, of similar homes and lot sizes, and determine about what a property is worth at any given time. The issue you will find with commercial property is that they tend to be one-of-a-kind properties, and you may not be able to find many local comparable sales in recent times.

One major difference between residential and commercial properties is their location and their use. If you own a large lot inside of the city limits, with a huge warehouse store built on it, with a 10 year lease to a big box store, then you have a very valuable property. If you have the same lot size, with the same store on it, same lease, but it is located 30 miles from the only local town where most people in the area live, then you have a lesser valued property. Location, also known as market area, is more important in commercial real estate because businesses need to be near to their workers and to their customers as well.

Another consideration when looking at market value of a commercial property is the availability of similar properties on the market. By looking at as many properties as possible, you can start to get an idea of what different properties are selling for in your local area. This gives you some leverage to point out differences and better negotiate the price you are willing to pay. This will also give you some idea of how difficult it will be to find a tenant for your property.

If you are tying to determine the market value of a piece of commercial real estate, one of the factors you should always consider is how well other properties in the area are renting and what they are renting for. You will need the rental income to cover your investment funding as well as your day to day costs of owning the property. If you purchase a property at an agreed upon price, will the rents support the costs? What if your property sits vacant for a month or two? These are things you need to think about prior to purchase.

When trying to determine commercial property market value there are many factors which come into play. The biggest being the market area, local property costs, rental income potential, and the property condition itself. By determining what you are willing to pay for a property, and having a professional commercial real estate market analysis completed for you, you can avoid many of the mistakes new commercial property investors make.

By: Andrew Stratton

About the Author:

Caffeinated Content – Members-Only Content for WordPress

As a successful property investor, you will want to make a commercial property analysis of any real estate deal before you consider making the purchase. There are many factors which you should take into account while making your property analysis. Some of these factors which you should look at are: the location of the property, the price, taxes, local government and zoning laws, potential rental income, as well as the options you have for obtaining the property using an investment property mortgage loan.

Commercial property has many guidelines and regulations which must be followed. The last thing that you want to do is purchase investment commercial property, and then find out once you own it that you cannot lease it to the business you want, or that zoning permits you from using the property how you would like to. Whenever you are reviewing a commercial property analysis, it is vitally important to find out about the local governmental rules and regulations which will govern what you can and cannot do with the property in question. Look at what you had planned for the property and make sure everything is in agreement.

Taxes can be a big consideration when you are making a commercial property analysis. Some local areas offer tax incentives for commercial property owners and to certain businesses. If your property can meet the guidelines then you could possibly see a nice tax reduction. Also, if the area taxes commercial real estate at a high rate, you could be in for a real surprise if you did not consider taxes in your commercial property analysis.

Just as there can be tax incentives to buying commercial property in a particular area, the same can be said for financing options. Many commercial lenders have programs which fit a variety of different business and community needs. If your property qualifies you can see a nice reduction in your mortgage interest rate.

Another consideration is the rental rate of other commercial properties in the area. If many properties are sitting vacant that is a sign that you may have serious trouble renting to a business and keeping them for the long-term. This is important for your commercial investment analysis because the rent money is your income on the property.

In addition to all of the above considerations, the usual considerations still apply. You need to look at the location of the property and determine if it is in a good enough location for what it will ultimately be used for. What is the area around the property like? Will people likely come to the location if a business starts there? Who are the residents of the local area and will they benefit from your property’s use?

You will need to look at the land and buildings and determine how much work and cost is likely involved in bringing things up to code and working order. Look at the offering price and consider if it is reasonable or if it needs to be adjusted because of the things you have found while looking at the other factors for your commercial property analysis.

While performing a commercial property analysis you should take all of the above into consideration. You also might want to consider hitting the pavement and talking to people in the area of your potential property purchase. See what the people who already live and work in the area think about the property.

By: Andrew Stratton

About the Author:

Create a video blog…instantly.

As a property investment company, which offers its clients a full estate agency service that is backed by professional advice and personal attention, we are often called upon to answer questions like …

“What is my commercial property worth?”

This is by no means an easy question to answer and to be perfectly honest it’s only worth what someone is willing to pay. Having said this, we do however use a number of basic formulas so as to calculate the value of commercial property.

The first method

We will measure the land and determine the square meterage. We will then determine the market value per square meter which is dependent on the area in question. We then multiply the square meterage by the price per square meter. This will give us a rough indication of the value of the land. The price per square meter normally decreases as the size of the land increases. The price per square meter will also be affected by factors such as the proximity to road and rail networks as well as by shop frontage, foot traffic and so on …

After we have evaluated the land, we will evaluate the improvements such as the height, size and general condition of the buildings. It is normally quiet simple to determine the replacement value of the facilities by keeping your finger on the local building costs. You can then compare the price of new build and marginally discount the price depending on the current state of the buildings. The ratio between the cost of new build and existing stock will vary depending on a number of economic factors. These factors are cyclical in nature but can be determined by an understanding of where in the property cycle we are at. (This will however unfortunately go beyond the scope of this article.) Finally, if you then add the value of the improvements to the value of the land, you will have the results of the first method.

The second method

This is more often than not the preferred method of evaluating what commercial property is worth. It is also favoured by the vast majority of property investors. Using this method, we will simply evaluate the rental yield that the property can produce. The rule is simple: the higher the rent, the higher the value of the property. What most investors do, when contemplating their acquisitions, is to divide the annual rent that they will receive by the purchase price that they will have to pay. They will then compare one property with the next and will usually settle on the one that offers them the higher yield.

They will however also take into account the strength of the tenancy agreements. If they are buying A-Grade office space with a Blue Chip tenant, a long term lease and favourable escalation clauses they will normally accept a lower yield as there is less risk to worry about. If however there are any concerns as to the integrity of the tenant, or if the lease is about to expire, then the potential risk increases. The only way to compensate for increased risk and potential void periods is to lower the purchase price and offer a higher yield.

The third method

This involves a healthy mix of the above two mentioned methods. Firstly we will evaluate the yields, this being the easiest method to compare apples with apples. We will then discount or add on to the value depending on the strength of the tenant and their lease agreement. Finally we will take a look at the value of the land and add to that the value of the improvements. That way, regardless of how the tenancy runs we will at least know that there is good value in the physical asset.

Having demonstrated to you the various methods of evaluating commercial property, please remember that at the end of the day, these methods and formulas only serve as a guideline. We always advise our clients that we can estimate the value but that only the market will determine the true selling price. Commercial property, like all property, is only worth what a willing buyer is prepared to pay for it!

By: Bradley Hancock

About the Author:

Caffeinated Content

India’s property markets are frenzy and are being driven largely by the rapid expansion of its information technology industry and the simultaneous growth of its middle class.

Boom is being witnessed by the commercial property sector. Properties are being transacted at unbelievable prices. The land prices currently prevailing in IT spaces have shot up three to four times of what it was two-three years ago.
Currently the country’s commercial and residential real estate market is valued at about $50 billion now, and is expected to grow 25% annually.

Whether from investors point, buyers or price everything is gearing up to steep heights.
According to a research there are thousands of commercial projects springing up across the country with the total Commercial activity index jumping to 60 in June from 58.3 in May with the sharp acceleration of commercial property in June & positive signals for the third quarter.
Such a sharp acceleration is visible from the fact that 18 million square feet of commercial buildings were erected in 2004 & year 23 million sq. ft. of will pave this year & by 2009 the toll will touch 50 million.

The areas where major investments are being generated are Bangalore, Mumbai, Hyderabad, Chennai, and Gurgaon, a suburb of New Delhi & further extending its proximity to second-tier cities such as Pune in the west, Jaipur and Chandigarh in the north, and Kolkata in the east.
All these are making MNC’s & foreign investors India as a keen target to invest. & the country is being considered as the “the next big thing” for investment.
Under this many Israeli Companies have not far in the race lined up for major investments giving neck to neck competition to powers like China.

So also the various joint ventures inflowing by different players like Big Shopping Centers (2004) Ltd who recently mounted up an Indian subsidiary with a local partner owing 60% in the venture & plans to build commercial centre making an investment of USD 40 million.
All these are universal to the fact that there is a real hunger for new construction to keep tempo with India’s robust 7% economic growth.

For more information about commercial property in india, please visit =>http://www.jaaydaad.com

By: Atul Sharma

About the Author:

Caffeinated Content

The refinancing of commercial property often occurs for the same reason a person might refinance their home – to reduce high interest rates. The owner may also be looking into refinancing in order to obtain cash from the equity that has been built into the property over time. Regardless of the reason there are few points to remember if you are thinking of refinancing your commercial property.

1.Any capital obtained from the refinancing of the property should be reinvested in the property itself. Any other use of the cash and the interest paid on the new portion will not be tax deductible. This cash-out amount will be considered a consumer debt if its use was found to be outside of the property and is therefore no longer tax deductible.

2.Because loans for commercial properties are typically much larger than those for residential properties, it will pay to consider the type of loan you have in depth before committing to a large loan that will take many years to repay. Compare your options for both fixed rate and variable rate loans. Does the variable rate loan have a cap? How many times is it expected to change? These details can often be inferred from the investment index that is linked to the rate. Be wary of any lender unwilling to discuss these details with you.

3.If you decide to refinance, check to see if the new loan has a “due on sale” clause. This clause works to the benefit of the lender in that it prevents the property from being sold without the approval of the lender.

4.Make sure you know what kind of paperwork will be involved. Professionally prepared stated income reports may be all you need for many types of commercial property, depending on the circumstances. Corporate tax returns, profit and loss statements, and balance sheets may not be required. In rare situations, full appraisals or environmental reports may be needed. The more complex the situation surrounding the refinancing, the more complex the required documentation may be.

5.Hefty penalties that must be paid off for pre-payment of an existing fixed-rate loan may prohibit some borrowers from refinancing. Check the details of your original loan to see if there are any pre-payment penalties.

6.Interest rates on commercial real estate loans have reached as low as 5 percent for a 10-year term. Make sure you get the best rate you can if you decide to refinance. It may be best to lock in long-term debt now – interest rates may or may not get any lower.

7.Consider selling if it is an option for you. Prime commercial real estate is a hot investment in many areas today. Test the market and see what kind of offers come back.
8.If your business is doing the refinancing of the building it occupies, acquiring a term loan may be an option. Term loans usually mature between one and ten years and can give small businesses the operating cash they need.

By: J Suffie

About the Author:

Kansieo.com

All property that has the potential to generate revenue now or in the future is commercial real estate. Some types of commercial real estate are:

o OFFICE PROPERTIES… Executive office space, office buildings, executive suites, flex space, rental office space, upscale office parks, corporate headquarters, class A office suites, freestanding offices, bank branches.

o RETAIL PROPERTIES… Shopping centers and shopping malls, shops, strip center sites, chain store site, showrooms, major franchise locations, showroom space, retail sites, pads, out parcels, free standing stores.

o DISTRIBUTION AND INDUSTRIAL PROPERTIES… Warehouses for lease, sublease, rent and for sale, industrial facilities, industrial parks, factories, factory sites, mills, industry manufacturing plants, cross dock trucking terminals, shipping container yards, supply chain management infrastructure, 3pl resource provider company facilities, bonded warehouses, rail freight warehousing, refrigerated climate controlled warehouse space, logistics bulk transport, air cargo airport rentals, deepwater port commerce, airports, rail yards, deep water ports, cold storage and dry storage facilities.

o HIGH TECH PROPERTIES… Research and development parks, medical laboratories, call centers, scientific building projects, office space, NAP, R&D Park.

o LAND BROKERAGE… Corporate Headquarters locations, land tracts, residential development tracts, Industrial Parks, zoned land parcels, speculative acres, waterfront property, reality sites, business parks, resort property, regional mall sites.

o INVESTMENT PROPERTY… Office buildings, industrial rental properties, realty, multifamily rentals, regional shopping malls, shopping centers, rental properties, net leased properties, business parks, land parcels, residential developments.

o HOTEL AND RESORT PROPERTIES… Hotels, motels, resort lodging and hospitality properties, luxury resorts, convention centers, motel and hotel brokers, golf courses, theme park sites, stadiums, attractions. Note that unused property held for future appreciation is also considered to be commercial real estate.

By: Ron Redlich

About the Author:

commercial property