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How to determine the value of commercial real estate

On Behalf of | Oct 22, 2020 | Transactional Services |

If investing in commercial real estate, you need to be sure you are spending your money wisely. With the market fluctuating considerably due to the year’s events, determining what a Jacksonville property is worth can be challenging. While there are some great bargains out there, some sellers will be keeping their prices high in the hope of catching a buyer unawares.

There are three forms you could use to assess the value of commercial real estate:

  • Income capitalization: Divide the net income the piece of real estate generates by the market value. It lets you know how soon you will recoup your investment and the potential it has to make you money.
  • Market value: This looks at what the property is liable to fetch in the current market. It is based upon what similar property in a similar location is selling for. Subtle differences between structures or where they are located can make an enormous difference to the price. If you took the same building and placed it one block over, its price may jump due to a higher footfall to businesses on that Jacksonville street.
  • Cost: How much would it cost to build the same building in the same place right now? You work that out then adjust for depreciation depending upon the building’s age. Often the value of the land increases far more than the cost of the building itself.

Once a professional has appraised a property, you can decide if it is something you would like to invest in. If you do, then the next step is for an experienced attorney to carry out the necessary checks. They can ensure there are no hidden pitfalls to buying the piece of commercial real estate.