EPISODE 009: Part 2 of 2: Residential & Commercial Property Values & How to Change Them
Categories: Strategy & Tips
Description & Show Notes: In this episode, we focus on Commercial Properties: how they are valued and 3 ways to increase their value as an owner. We look at the ways that the Net Operating Income (NOI) and Cap Rates work together to determine the value of a Commercial Property, and easy ways that you as an owner can improve both of them to have a major impact on the value of your property in just 2-3 years. There is a simple recipe for success in this part of the Real Estate Investing world, and I'll introduce it here.
The 2 Components of Commercial Property Valuations:
Net Operating Income (NOI):
Take all the income and subtract out all the costs associated with running the property. (usually everything but your loan payment)
This number is a FACT.
The desired return a new buyer would want (or need) to get if they are buying a property
This is an OPINION.
The Value of a Commercial Property is found like this:
NOI / Cap Rate = Value
$100,000 per year / 8% return = $1,250,000
100,000 / .08 = 1,250,000
Commercial Property Quick Tips:
Renovating the Management is easier & cheaper than renovating the "property" itself
Give yourself 2-3 years to implement your plan on an apartment turnaround and longer for retail or office spaces