Commercial Real Estate Income Approach to Real Estate Valuation
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The Income Approach to Real Estate Valuation
The income approach is one of three techniques commercial real estate appraisers use to value real estate. Compared to the other two techniques (the sales comparison approach and the cost approach), the income approach is more complicated and therefore it is often confusing for many commercial real estate professionals. In this article, we'll walk through the income approach to property valuation …
The Cost Approach to Real Estate Valuation
Appraisers use three different methods to estimate the value of a property. The income approach considers the value as the present value of future expected cash flows generated by the property. It is most accurate when valuing commercial properties with rental income in active markets. The sales comparison method relates the estimated value of the subject property to similar properties that have …
How To Determine The Highest and Best Use of a Property
The concept of highest and best use is one of the fundamental principles that underlie real estate appraisal. Highest and best use requires that the appraisal considers not just the current use of the property but also the potential value associated with alternative uses. The Appraisal Institute has four tests that appraisers can use in order to narrow down all of the alternatives to one highest …
How to Calculate the Cap Rate
The cap rate is an important concept in commercial real estate and it is widely used. There is often confusion about how to calculate the cap rate using various methods. The purpose of this article is to demonstrate several ways to calculate the cap rate. How to Calculate the Cap Rate Ratio Perhaps the simplest place to start is to calculate the actual cap rate ratio. The cap rate ratio is just …
Understanding Present Value Formulas
It's important to understand the math behind present value calculations because it helps you see what's actually happening inside a calculator or spreadsheet. And once you understand the math, the calculations become much more intuitive. Yet, many people struggle with understanding present value formulas and calculations. In this post we'll take a deep dive into the present value formula for a …
How to Analyze Retail Building Supply and Demand
Understanding supply and demand conditions is an important step in the commercial real estate market analysis process. Yet, analyzing supply and demand for commercial real estate can be challenging because it involves sorting through large amounts of data from different sources. In this article we'll walk through an example supply and demand analysis for retail buildings in Orlando, …
How to Analyze Industrial Real Estate Supply and Demand
Forecasting industrial real estate supply and demand is an important task for many commercial real estate professionals. For example, developers interested in constructing a new industrial park need to consider whether there is sufficient demand to support the new development. Supply and demand conditions also affect market rents and vacancy rates, which in turn determine property valuation, and …
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