To value commercial properties, most sellers and buyers utilize an income approach, which analyzes cash flow and determines the debt service and investor return. Usually, the internal rate of return (IRR).

In fact, no other valuation aspect is used as heavily as cap rates. Essentially, a cap rate converts income into a value. A commercial property’s net operating income is divided by the cap rate. This result produces a figure that reflects a return on and of capital. The income approach begins by estimating property income and subtracting a vacancy/collection loss allowance and expenses to achieve the NOI. Then the NOI is divided by the cap rate to obtain the property’s value.

Commercial real estate owners, lenders, analysts, appraisers, and assessors typically obtain similar projections for a property’s income, vacancy/collection loss, and expenses. Minor variances in these figures have little effect on a property’s value, especially when compared to historical projections on a stabilized income stream. However, value opinions usually differ in the cap rate selection.

TO RECEIVE A QUICK ESTIMATE ON YOUR COMMERCIAL PROPERTY VALUE PLEASE COMPLETE THE INFORMATION BELOW.