Top 6 Commercial Real Estate Valuation Method in 2021
The purchase or sale value of commercial real estate depends entirely on the appraised value of the building. Asserting the exact value isn't easy. Whether it is an industrial complex, an apartment, or a pre-occupied business structure, the prices of commercial real estate in Louisville, KY, are more subjective than the residential properties.
The challenge is simply because of the uncontrollable elements like overall maintenance cost, current market price, and comparable availability. But the most important all is the price the buyer is ready to pay. So, before you start looking for commercial property for sale in Louisville, KY, check out the top methods used for calculating the property cost.
Cost approach
The method to calculate the cost of a real estate property considers the cost of rebuilding the entire structure from scratch regarding the current value of the construction materials, land, and other associated costs.
The approach is generally used when it is quite difficult to locate the appropriate comparables, like when the property contains specialized improvements or upgraded structures are added to increase the land's value. So, before you start your search for Louisville commercial property for sale, find out the estimated price to see if it fits your financial needs.
Sales comparison approach
Commonly known as the market approach, the method depends entirely on the comparable properties' recent sale data. The method helps ascertain the property's cost by considering the recently sold buildings from the same market with similar aspects.
For instance, the buyer may consider a 10-unit apartment building to a similar one sold in the neighborhood a few months back. But you must know, considering the localized market conditions, it is quite challenging to find the value of the recently sold building.
Income capitalization approach
The method is entirely based on the investor's income amount expected to generate from commercial real estate in Kentucky. The expected income is calculated by comparing similar local properties and the expected decrease in the maintenance cost.
Value per door
This method helps in finding the building’s value based on the unit numbers. For instance, a 20-apartment building priced at 4 million dollars will value $200000 per apartment regardless of the unit size.
Cost per rentable square foot
This method combines the benefits of common areas tenant-like elevators with usable square feet. Using this valuation method, you can easily find the cost of renting a square foot. When the value is compared with the average lease cost per square foot, one can get the entire building's value. Thus, before you start looking for commercial real estate for sale in Louisville, KY, you can use the method to determine the property's cost.
Value per Gross Rent Multiplier
The method is used to compare and measure the potential valuation of a property. For this, the cost of the property is divided by the property’s gross income. In simple words, consider you purchased commercial property worth $200,000, which generates a gross rent of $50,000 per year. This would mean that your GRM will be about 4.
The valuation method is commonly used to identify lower-priced properties.
In the end, the commercial property evaluation method varies for different buyers. But keep in mind the valuation need not be subjective. The top commercial real estate investors consider their instinct to find the most attractive deals and the best valuation method for each transaction.
Hire as your commercial real estate agent for support
Given the different property valuation methods, things can get complicated, especially when purchasing or selling the properties for the first time. This is why it is better to hire a real estate agent to ease your work and help you get the best deal. Raphael Collazo, one of the best real estate agents, is here to help you in the best possible way. Spent years in the industry, I have acquired the necessary skills in retail and multi-family properties. I can offer you innovative and effective real estate solutions that will give the best of your investment.
Call at 502-536-7315 to get professional advice and help for real estate investments.