A simple formula determines the value of the commercial property that is up for sale. It is based on the net operating income the property generates each year. When you are considering a commercial property to sell, the first thing you should ask is for the profit and loss statement.
When looking at commercial endowment premises for trade in Birmingham, the problem is that brokers and/or owners will often exaggerate the income generated by the property while trying to reduce operating expenses.
Image Source: Google
How do you determine the value of a property for sale?
The net operating income generated each year by any commercial real property determines the value. Each dollar of additional income per year increases the property's value by approximately ten dollars depending on the location and age of the property. This extra income can be generated by generating additional rents or by reducing expenses through better management of the property.
Verifying Income and Expenses:
Remember that when calculating the costs of commercial property for purchase, you are trying to figure out the actual cost to you and not what the seller has spent. While it is helpful to know the exact costs of the seller, we have learned not to rely on this information when looking at commercial properties for sale.
A simple formula to use for expenses:
Divide the net operating income by the capitalization rate to determine the value of the commercial property. This will vary depending on the type, age, and location. Asking another broker to help you determine the capitalization rate that you should use when looking at a commercial property for sale will give you an immediate idea.
Use Escape Clauses To Limit Your Risk:
You can also protect yourself by ensuring that your purchase contract gives you the right to cancel at any time if you aren't satisfied with any property you see. If you do it right, you can usually tie up a property for between 60 and 90 days to allow you time to determine its true value. It is easier to view commercial real estate if you have the right escape provisions. You can also navigate to this website to know the actual worth of your property.