Multiple methods exist for valuing commercial real estate

On Behalf of | May 10, 2019 | Commercial Real Estate

Researchers recently reported that non-residential properties are worth 10 trillion dollars today. In other words, the commercial real estate market is booming, so now appears to be an excellent time for investors in New York to enter it. Because valuing properties accurately is an essential part of real estate investing, here is a look at a couple of approaches that investors can use to determine a property’s value.

A popular approach is the sales comparison or market approach. This approach involves relying heavily on similar properties’ recent sales. Investors usually use this approach to determine apartment buildings’ valuation. However, it may not be a completely reliable approach when the market is slow, as finding similar sales of properties for comparison purposes may be challenging.

Another commonly used valuation method is the gross rent multiplier. With this method, investors take properties’ prices and divide them by the properties’ gross incomes. The method is used to determine how much time would be required for properties to essentially pay for themselves with their top-line revenues. This option is often useful for identifying a property whose price is quite low compared with its income potential.

Even though buying commercial real estate properties may be a wise move in 2019, investing in real estate does carry some risks. This is why consulting an attorney before commending with a deal is critical. An attorney can walk an investor through the legal aspects of a transaction and make sure that his or her best interests are upheld during all stages of the deal in New York.