I am looking at a 14 unit here in Chicago that has been vacant for 2 years. the property caught fire and the owner started dong repairs but did not complete the project. he said something about the banks would no longer fund his rehab. since the fire occurred to just a portion of the building, he only received insurance money for the section. i did a walk through and took pictures. Now how do i proceed. someone told me to get an income and expense report from him but as i mentioned earlier the property has been vacant for 2 years now and he has not listed it yet. How do i proceed. I don’t have any contracts for commercial deal and not sure what to do next. PLEASE ADVISE.
This is an interesting property!
Very first thing find at least 3 but 5 or more is helpful, properties with comparable number of units, bedrooms and baths, square footage, amenities and utility configurations as your subject property.
Make sure these are properties that have sold in the last 3 months, and are within 1/4, 1/2 or 1 mile of your subject property.
This gives you a basis of gross values and an average of a value per unit! Talk with a realtor and find out your cap rate for the area, they should have an idea of an average.
Now have your realtor get you at least 3 property packages for comparable unit, type, style, bedrooms, baths, square footage, utility configuration, etc. That are for sale now!!! Now use these packages to reconstruct the rent rolls, expenses, net operating income, vacancy factor, etc.
Talk to a couple of property management companies and other realtors to make sure the numbers you are using are indicative of the area and were not “Just Created” by these property sellers to support there valuation, or fluff up there numbers.
You can contact the utility companies and get the past two years of actual service for your subject property.
You will now have an acurate view of the actual market and income / expense of your property and can now calculate and project a value based on these numbers. You can re-create a projection of rental income, operating expense and a net operating income before debt service and cash flow.
(Remember a vacancy factor)
Then you will need a very accurate contractors estimate of damages and repair / remodel cost’s.
I agree with everything GR said but, I like think deriving a cap rate based on your goals is preferable to using a market cap in your valuation. Because your circumstances can and probably are very different than other buyers in the market. That’s not to say don’t look at what the market is doing. It’s just creating a valuation based on you rather than others.
Google: Band of Investments it’s the real estate version of the corporate valuation tool WACC (weighted average cost of capital).