how to find the value of commercial real estate

[Austin Kuritz]

Hello BP, I work with someone who owns a commercial property (14 unit) in trenton mi, 48183, brownstown township area, and i believe he's renting it way below what he could, theres a lot of value add. dont get me wrong he keeps it nice with turn overs, reapainting, flooring, etc. however there's things like heating and cooling that can be updated, the exterior still has lead paint that is pealing off. what im curious about is that i might want to see if hes interested in selling, he's close to my dad and he owned this property for awhile and self manages it so he might be more motivated tp get rid of it. i guess the question im trying to ask is how do i male sure how much the property worth. i listen to all the podcasts and read a few articles, books, etc and i know that commercial property dont go off comps but how do i really understand how much i could pay for it. also any pointers or tips are very appreciated. im also open to partner with someone to get the hang of things. looking forward to all the feedback! :-)

[Jeff Kehl]

@Austin KuritzThere's a multifamily forum which is more active than this one and you will likely get more responses. You should post there and do a lot more investigation but here's a few tips. 

Determine gross rents. 14 apartments at how much per apartment? Use what they are actually rented for today. Ask several people including the tenants to make sure what they are actually paying.

Yes you want to raise them but forget about that for now. Pay them for what it is actually earning today. Say they're currently rented for $500/month average so you're working with $7k a month actual gross income.

Then ask them to provide profit and loss or expenses for the last couple of years. If they speak the lingo ask them for a trailing 12 or T12 profit/loss statement. If you can't get this start with 50% of gross rents and then adjust as you get more information. Look into taxes, insurance, utility costs, maintenance etc.

When youre done let's say you see $4k of monthly expenses. Then you're buying $3k per month of NOI or $36k per year. Apply the going cap rate for the type of propertyby looking at similar sales.

Let's say it's 10%. Property is worth $360k. Adjust as you will for what you think you can do with it. Think it's an awesome growth area and you can raise rents? offer $500k. Think it's a dying area offer $300k...

There's a lot more to this so please do more research.