5 Ways for Evaluating a Commercial Real Estate Investment

There are many evaluating commercial real estate investment methods, both in the market and rental values, depending on the destination and use of the property studied. Here, we bring you five ways to evaluate a commercial real estate investment.

The influence of the environment –

In the same city, we can observe differences between neighborhoods but also from one street to another. The environment, the attractiveness of the area, the district's reputation, the feeling of security, the prospects for the development of the territory: all these elements influence the final evaluation of the property.

Loan rates –

Another aspect to consider is "loan rates." Commercial real estate loans are easier to get if the property has a good location and future growth. Investing in real estate property largely depends on "loan rates." Not everyone can invest from their pocket but look for a bank loan, hard money lender, or mortgage loans. So, always evaluate the location and loan rates before investing.

By comparison (or market method) –

The so-called "comparison" method consists of deducing the property's value from the analysis of the price obtained from the recent sale of other properties as similar as possible in terms of consistency, condition, location, and qualification. This method is divided into sub-methods: "soil + construction", "integrated building land", and "by statistical regression".

By replacement cost –

On the one hand, the buyer wants to achieve "a good deal." On the other hand, the owner wants to sell at the "best price." But what is a reasonable price? The "replacement cost" method consists of reconstituting the property's cost price by deducting depreciation for obsolescence. This method is little used in terms of market value. It is more frequently used for very specialized commercial properties or to define utility or operating costs.

Consider the construction time –

Generally, newer properties tend to have a significant difference in value compared to older properties. After all, they are properties more suited to the current reality and offer better infrastructure quality. However, to know how to evaluate property properly, try to understand its time of existence. Don't forget to count on the help of professionals specialized in the subject.