For example, a 2-bedroom apartment will typically rent out for more than a 1-bedroom apartment in the same complex.
This is the percentage that most lenders will use when considering your potential purchase as well.
To be even more accurate for a rental property, replace the GSI in your calculations with the EGI. This is a more conservative estimate of profit. For example, your operating expenses for a space might include advertising costs or management fees. This is also referred to as “EBITDA” or total earnings before interest, taxes, depreciation, and amortization.
For example, if a property has an NOI of $75,000 and is priced at $250,000, then the capitalization rate would be 30 percent.
For example, if the property has a cap rate of 5% and an NOI of $90,000, then the price should be $1. 8 million.
You can estimate the GRM for a market area by performing these calculations with multiple properties and averaging the results. For example, if a property’s sales price is $730,000 and its annual gross rents equal $80,000, then it has a GRM of 9.
For example, if a property has an annual gross rent of $70,000 and a GRM of 8, then a reasonable price would be $560,000. Your commercial real estate agent or appraiser should be able to provide you with an accurate GRM for the area or property.
This is something that is a bit different from residential real estate where square footage places a lesser role in valuation. Calculate the price per square foot (PPSF) by dividing the sales price by the total square footage.
For example, the air conditioning unit for a commercial building might be functioning just fine. But, if it is over 20 years old, it could need repair or replacement at any moment.
If you are already working with a broker, they may be able to suggest a particular lawyer or accountant to add to your team.
For example, if you are considering renting to a manufacturer, the property may need to be zoned for industrial uses.
For example, CVS, Starbucks, and other large companies will often create triple net leases with property owners.
Keep in mind that most multi-family commercial structures have spaces for differing numbers of residents. For example, an apartment complex might have one, two, and three-bedroom rental options.
