Calculations for Multi-Residential + Vacant Business
There is a property, not listed for sale, that I want to acquire. It currently has 4 apts that are occupied, plus an empty space I want to put a business into. How do I get an accurate estimated purchase price through reverse cap rate calculations if part of the building is empty? Would I estimate the lease amount for that space and use that number? I don’t know how to get real numbers for ROI, and CCR with a vacant space.
[{"id": "fi157ce", "text": "Pay for the property for what it's currently worth, not what you will make it be worth. Calculate the price off current NOI and Cap Rate if the seller is open to selling it. Your potential is huge if you fill that space, increase the NOI, and get it reappraised.", "replies": [{"id": "fi31kxl", "text": "&gt;Calculate the price off current NOI and Cap Rate\n\nOnly an idiot seller is going to let you deduct the capitalized value of an empty space.  Say the Commercial space could generate $25,000 NOI and market caps are 8%.  That adds $312,500 of value to the property.  You would value the property starting with the Potential Gross income.  Then you would make below the line adjustments for lost rents, lease up costs etc. and a risk factor.  If the seller knows you have a tenant for that space you will not get much of a discount.", "replies": [{"id": "fi3etov", "text": "The property will never sell and they can\u2019t get a business tenant they have been trying for years. I\u2019m their best bet to sell.", "replies": [{"id": "fi3u34a", "text": "&gt; The property will never sell and they can\u2019t get a business tenant they have been trying for years. I\u2019m their best bet to sell.\n\nWhy would you want such an undesirable property. just because you think you can get it cheap?  You'll have the same issues if you ever need to sell.", "replies": [{"id": "fi3y141", "text": "Because it\u2019s cheap and the business I can put in there can generate $1-2.5m/yr. plus then I can use the properties equity to buy more multi residential units.", "replies": [{"id": "fi445hw", "text": "&gt; Because it\u2019s cheap and the business I can put in there can generate $1-2.5m/yr. plus then I can use the properties equity to buy more multi residential units.\n\nWon't your business generate the same amount in a better location?  Then you get the benefit of your business and the property.  Buying a cheap hard to sell property rarely works out.  Also when you try to pull out equity you probably won't get the benefit of \"your\" rent since an appraiser will know if you go vacant it will probably stay vacant for a long time.  From what you are saying the commercial space has no use to anyone but you.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "fi2un4i", "text": "Pay an appraiser to appraise the as-is value of the property. That will cost you a few grand\n\nOr, you get the rent roll and trailing 12 month operating statements. Calculate the NOI, divide by market caps and you have a decent idea of asking price. \n\nYour value add, is saving on opex, capex and raising rents, and/or leasing out the office space. \n\nYour new NOI after improvements could be a huge delta and make you some good $$$.", "replies": [], "depth": 1}]