@Michael H.
Free marketing channels are great!
Based on what you’ve shared, doesn’t appear the seller provided a definitive reasoning how he arrived at his numbers. …If I were in your shoes I would start with:
1. Find out gross rents (..Seems you may have this number already)
2. Determine All annual expenses (…sometimes I do a back of the napkin calculation for about 55%)
3. Research cap rates for that sub-market area. Contact local broker to see what cap rates commercial properties are trading as in that area.
4. Determine the NOI : annual gross rents - annual expenses = NOI
5. Calculate the approx. market value: NOI / cap-rate (if market cap rate is 5.5%, then the you do NOI / .055)
6. This is all preliminary; However the number you arrive with in number 5 would help me gauge if this is worth looking into further and exploring if there there is value add opportunity based on:
a. Local market rents
b. Condition of property
c. Misc. micro-economic variables impacting that area (casino being built, government agency transitioning into the area, etc.)
d. Anything else I overlooked during this 2minute brainstorm.. :-/
Also these guys have always contributed great in depth advise on how to approach these opportunities:
@Ben Leybovich
@Serge Shukhat
@Brian Burke
…My two cents, Happy hunting!
