Evaluating Commercial Property

[Mendy Sacks]

I am looking to purchase commercial property. I am unsure as exactly how to determine the value of the property. If I am taking the income approach to find the properties value (which I believe based off research is the most accurate way, unless told otherwise), I know I would take the gross income of the property and subtract the operating expenses. My questions are as follows:

What exactly goes into operating expenses? (If possible, please itemize this answer)

For items such as vacancy, management fees, repairs, and maintenance, what percentages would I calculate?

How do I estimate insurance if insurance is usually determined by the ARV, and that is what I am trying to figure out?

Then, after I determine the exact operating expenses and subtract that number from the gross income, do I divide that by the areas cap rate, or divide it by the cap rate I want to be at? (For example, the area is at a 6% cap while I want to purchase at a 10% cap)

Thank you very much for taking the time to answer this long and detailed question.