Office Building comps/analysis

[Michael Standish]

I’m evaluating a commercial deal in my neighborhood and need to insight into analyzing the deal and finding comps.

Summary:

Off-Market Deal - 4 unit office space

Each unit approx 825sqft

Currently 75% occupied

Asking price $95k

Current total rents $950/mo

Bills covered by the landlord ~$150/mo

Property tax ~$2000/yr

Located in a more residential area, about 1 mile from a main strip. There is a concrete contractor in the building next door and a dental office across the street. Current tenants are a message therapist, psychologist, and web developer. All tenants are on short term leases. The seller also offered to finance the deal, if I am interested.

My main question is how to I back into a reasonable purchase price? The property seems to cashflow as-is but I’m concerned with the short term leases and none of the tenants have been there for more than 1.5yrs.

[Jaysen Medhurst]

@Michael Standish: When figuring NOI, you have to account for all Operating Expenses, which is basically everything except CapEx and Debt Service. You're certainly missing vacancy, maintenance and management. Depending on the property other expenses may include: lawn care, snow removal, pest control, trash removal, annual city inspections, and admin/professional fees.

As far a cap rate, commercial agents and commercial loan officers are usually the best sources. I wouldn't use Loopnet or broker sites, they have incentive to compress cap rates and inflate values. You want to know the actual Cap Rate that things are selling for.