Seeking free Advice from Commercial Appraisers...

[brunge]

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]

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]

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]

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]

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]

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.