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Seeking free Advice from Commercial Appraisers...

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brunge

Thread Starter
Sophomore Member
Joined
Aug 24, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
I am considering purchasing a 1,000 sqft office condominium. The building is brick and steel construction (Colonial style) 2 story building in project containing 5 similar buildings each containing 2 ground floor units and 2 second floor units.

I am considering a second floor unit which contains 3 offices, a good size reception area, a ½ bath, and a kitchenette.
The condo dues are $250 quarter.
Purchase price 70-75-k.
Market Rent for the dwelling is $850-$900.
Appreciation seems to be stagnant, however, the business park it is in, is very popular which is evident by new buildings opening up regularly. There does seem to be a surplus of office space available in the area, including this business park.

Does the sale price / market rent ratio seem typical for this type of property?

When is it better to rent than own commercial office space?

I can rent comparable space outside of this popular business park for about $600 per month. And I do not necessarily need to be in the park.

Any and all advice would be greatly appreciated.
 

jtrotta

Senior Member
Joined
Jan 16, 2002
Just remember, the advice you seek may be worth only what you pay for it; so be sure to research on your own also.


8)
 

Restrain

Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
I would also consider the tax considerations, both real estate and IRS/State income regs. While the appreciation may be flat for the immediate future, you may obtain sufficient tax write-offs and depreciation on your tax forms to actually turn a positive cash flow. Remember, on this building you will at least be obtaining equity while in a rental unit, all you get is a rental statement each month. If you plan on buying, look at your long term plans. If you plan to remain in the facility 10-20 years, then look at a 15 - 20 year financing. If you are planning to vacate in less than 10 years, then finance for the longest period possible.
 

Verne Hebert

Senior Member
Joined
Feb 25, 2002
Professional Status
Certified General Appraiser
State
Montana
The when is it better to rent than buy is something you have to discuss with your accountant. In terms of the appraisal process there will a point in time, which is often difficult to nail while it is occurring due to the lagging availability of data, when vacancy and rents are changing; this point in time is when the best "value" of purchasing exists--a function of increased vacancy.

Your sales price/rent ration is commonly referred to as GIM. But what is also heavily considered is the capitalization rate-you have not made this available; and that is just what the appraiser will do for his compensation.

There is no "standard ratio for a building of this type". All of these "ratios" change with the economy, time, and location. Are these generally "owner-user"? There tends to be some nuances in the marketplace when occupancy is significantly owner-user due to how these users justify there purchases.

I am working on an extremely difficult appraisal for a new commerical office building from construction drawings. These elements are exactly what I am getting paid for.

I haven't done a commercial appraisal in this town for 3 or 4 years, and never office space--but it appears so far that a capitalization rate if 10.2% is not good enough for the "typical investor".

I hope this is of some help. I have to get back on this project and grind away.
 

Austin

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified General Appraiser
State
Virginia
Stagnant prices, over supply, new units coming on line??? Not good! How did you determine it is a popular area on this basis? Sounds like it is popular for some developers that never heard of a market analysis. Maybe what you don't need is "free advice." I think you need some of the expensive kind.
 

brunge

Thread Starter
Sophomore Member
Joined
Aug 24, 2002
Professional Status
Certified Residential Appraiser
State
Virginia
Hey, I appreciate the advice, I was joking about the "free advice". I wouldn't expect an appraisal here or any real time spent pondering the query...

I was only hoping for a little professional courtesy from one appraiser to another..

Thanks.
 
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