How do you value a commercial retail property. It used to be a restaurant. Tenants walked away, owners want to sell. How do I place a value on this property.
Don’t you figure the income it will bring, how do you find out area rates?
4500 sqft
In a busy shopping center
Hi,
There are a number of variables that go into this! There are two types of restaurant property.
Is the type where the building was actually built as a restaurant from the beginning and it is not cost effective or practicle to try to gut the building and rebuild commercial space inside the shell.
Is the type of commercial property where this was commercial space and someone paid to build out the interior of the shell into a restaurant.
If your target property is number 1 above, then you need to find out what like sized restaurant space is renting for in your area and what type of lease is most common for a restaurant. This will give you the basis for evaluating income! Then of course you will need to create an income / expense projection to evaluate what the debt / cash flow portion is and what this will support in value.
Keep in mind in some area’s of the country there are lots of restaurants sitting vacant and depending on how old / last time the interior and exterior was remodeled will predict how desireable this property may be in relation to other properties.
If your target property is number 2 above then you could figure out what it would cost to demo the property if you initially tried leasing as a restaurant and could not find a tenant then you could lease it as shell and figure the interior will get demo and any usable interior items like kitchen appliances salvaged which might offset the demo and some interior build out credit for a new tenant. Then rent according to commercial space in your area.
The evaluation for value is just like 1 above you need to determine fair market lease value, create a income / expense projection and then determine what portion is available for debt service and positive cash flow (Cash on Cash) returns.
I take it this building is free standing out in front of the shopping center somewhere? Remember to factor in a vacancy factor!
Condition and age of interior should factor in to this as if your buying a 15 year old restaurant your going to need to update and remodel to get a tenant and you should buy accordingly!
GR
The best thing you can do is hire a real estate property appraiser to evaluate the value of the property. If it can be used in other means since it is a commercial property it may get a good deal.
Thanks,