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When it comes to investing in commercial real estate, one of the worst things you can do is overpay.
Depending on the type of commercial property you want and the area you're focused on, the asking prices may or may not be reasonable. You need to set a budget, make your best offer, and let the chips fall where they may.
How do you ensure you don't pay too much for real estate?
The best way to make informed bids is to conduct real estate appraisals. Keep reading to learn about appraisals and why they're in your best interests.
Sales Comparison Appraisal Process
Getting a real estate appraisal can be done by comparing apples with apples. In other words, an appraiser can accurately evaluate your property or a property you wish to buy by comparing it to similar properties.
This process involves combing over sales data of similar commercial properties to arrive at an estimated value of your property or real estate on your wish list.
It's about looking at your area, economic and physical characteristics, and more. Conducting an appraisal courtesy of a sales comparison will give you a realistic valuation that you can work with.
If you want to buy or sell commercial real estate, you need to know the real estate market value.
Cost Method Appraisal Process
While looking at comparable real estate is a good way of conducting an appraisal, it's not always the best method. Two commercial properties could technically be similar but distinct at the same time.
An example of this is if a commercial building has recently undergone renovations or has some unique features that comparable assets don't have. While the property might be in the same category, there could be differences.
The cost method is one way to perform real estate appraisals in such cases. The appraiser will do the following:
- Figure out the valuation of the land
- Determine the expense of constructing the same sort of improvements
- Tally the land value and aforementioned construction costs
- Subtract the depreciation to any structures over time
After the appraiser has completed these four steps, you'll have an accurate appraisal courtesy of the cost method.
Income Capitalization Appraisal Process
If you want your commercial real estate appraised using the income capitalization method, the appraiser looks at certain factors.
For instance, the appraiser will consider estimated profits, intended use of the property, estimated losses, estimated expenses, how long the real estate will offer income, and rates of return for comparable real estate.
It will also factor into the equation the projected worth of the property if it's sold down the road. Opting for this kind of real estate appraisal will give you an accurate view of what your asset is worth in the real estate market.
Do You Need Help With Real Estate Appraisals?
If you own commercial real estate in or around Menifee, CA, you owe it to yourself to hire a property management firm to help in the capacity of a landlord.
At PMI Warranted, we specialize in assisting commercial property owners. If you want to determine what your asset is worth, we can perform real estate appraisals.
For your property management needs, get in touch to see how we can help.
