What’s the best strategy for valuing commercial property accurately?

Discover helpful tips to accurately value commercial properties and maximise returns. 

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Why is commercial property valuation important?

Are you a newcomer to the commercial real estate market? First of all, congratulations! You’ve just started a lucrative investment pursuit that can give you long-term financial security. Your next step is to secure your first positive cashflow property.

Now, picking your first commercial property is not as easy as buying the first property that appeals to you. There are many factors you need to consider before you finalise the deal and sign the dotted lines. One of the most important is the value of the property.

Apply the concept of an appraisal in the context of evaluating the overall worth of a commercial property. That’s valuing commercial property in a nutshell. It helps you decide if the property misses the mark or if it’s worth its listing value.

That said, it’s not easy for a beginner to determine the value of a property.

So, here are 4 expert tips and strategies on how you master the art of valuing commercial property.

Valuing commercial property: 4 expert tips and strategies

Conduct market research

While it’s important to conduct a thorough inspection of the property itself, it’s just as important to assess external factors related to the property. Compare and evaluate the recent sales or lease transactions of similar properties within that neighbourhood. Take the surrounding location, amenities, accessibility, economic outlook, age and condition of the commercial property into account. This will help you analyse the value of the property more accurately.

Select the right commercial property valuation model

There are three common commercial property valuation models; the income approach, the sales comparison approach and the cost approach. The income approach uses the income a property can generate to estimate the fair value, the sales comparison approach compares the property’s value against the recent sales of other similar properties in the same area and the cost approach considers what it would cost to build the property from scratch, which factors in depreciation.

Conduct a thorough financial analysis

While investing in commercial property is an exciting prospect, you should ensure you can fund it. Undergoing real estate investment training helps you to gain higher proficiency in financial analysis. By gaining financial intelligence, you can maximise your cost-saving approaches, find ways to increase your passive income earnings and evaluate your potential returns before you proceed with an investment decision. 

Be wary of risk and market conditions

Be mindful of possible changes in the commercial real estate market, economic conditions, or other risk factors that could impact the commercial property’s overall value. Be aware of fluctuations or changes in interest rates, zoning laws, or local regulations which may affect the property’s value. If you’re unsure of the impact of these factors, get in touch with a commercial buyer's agent or professional property valuer, who can help you evaluate the property value.

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FAQs

Why is commercial property valuation important?

Valuing commercial property helps you come up with a fair estimate of a commercial property’s worth by taking various internal and external factors surrounding the property into account. This way, you can make sure you’re not paying extra when purchasing a property.

How frequently should commercial property valuations be carried out?

The frequency of valuation depends on market fluctuations, property type or changes in regulatory requirements. This means that valuations can be performed on an annual basis or every few years,depending on changes in market conditions, zoning laws or other factors. 

Can using a particular valuation method impact the property’s overall final estimate?

Different valuation methods can yield different results. All of these methods take various factors such as property type, market conditions, and specific valuation goals into account. 

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