What’s a commercial property worth?
Its value is as much as a piece of string is long.
Defining the value of a property is the job of valuers, and I don’t envy them – it’s not an easy job.
It’s full of guesswork and unquantifiable things.
I was looking at a student deal the other day – (It’s not a done deal they are at the initial investigation stage)
There was a retail space with a residential space above.
The retail was leased – a restaurant which had been there for many years.
The residential was empty.
It could easily be rented as offices or an apartment.’
So the question came back “would the property be valued at the rent of the restaurant or the value of both up and down stairs based on the potential rent.
Good question… Who knows?
It would depend on the valuer and how they wanted to do it.
There is a formula for working out the value of untenanted property – but there’s a lot of guesswork involved.
They would still have to take into account the cap rate of the area. They would need to work out the potential of the untenanted area…
But would you rather be a millionaire or a “potential” millionaire?
Potential is all well and good but you can’t bank it.
So they might then apply a higher cap rate to the untenanted area – basically saying that since it is without a lease it’s worth less…
But what are they really basing that on? What use are they calculating that on?
More guesswork with a side order of uncertainty
The interesting thing is that both you, as the buyer, and the vendor are both working off this very inaccurate calculation.
So no one involved in the transaction knows what’s going on.
But there IS a place where you can get pinpoint clarity on the value of the property.
The market will tell you…
Whatever the property sells for is the true value of the property…
Because that’s the price that the buyer was willing to buy it for and the vendor was willing to sell it for.
You can’t argue with market forces.
So how does this translate into doing a commercial deal?
You work out what you think it’s worth… Do your numbers – [I show you how to do exactly that in my course…]
It’s not the same way as most people will tell you…
…that’s why I get better deals than most people… [Check out this online training I run]
Then, you go to the agent and say I think it’s worth this – is that in the ballpark of what the vendor is expecting?
That way you can see if there is a deal to be had.
Sometimes vendors want way too much for a property and are unwilling to budge… Which is the point where you move on and find another deal.
Sometimes they want too much but when you use my negotiation tactics and do the numbers the way I teach, you can show the vendors your calculations and educate them as to why their property is not worth what they hoped for…
And they may agree, at which point you can start to negotiate a win-win for everybody.
In that process, you will find the true market value of the property because that’s the price you agree on.
Cut and dry and 100% accurate.
Up till the point where the property is settled, the true value has not been established.
That’s the great thing about negotiating commercial property. You can put in “soft offers” to gauge the interest of the vendor and how flexible they are.
You can talk to the vendors and show them your numbers, explaining to them why you believe the property is worth. What you think…
You can even renegotiate after the contracts have been signed in some cases ( but that’s a story for a different time).
It’s all a dance until the day you settle and if you dance it well, you can nail down a killer deal that will provide you income for a lifetime.