Well I flew to the city. Looked at the building and here’s what I came up with.The building is 26K square feet . it is located 2 blocks from a major city’s convention center. it needs about $350k conservativly worth of repairs.It could potentially bring in $31,999/month on a double net lease(utilities not included…too expensive to seperate)Average utility was $3200 when bldg was last used .(6 years ago)
,the fact that it was tax exempt when it was in use makes appraising difficult so the apparisal is way off ,So lets see.here in florida and I reallize the bldg isnt in florida but the rule of thumb and if anyone has a better “Rule of Thumb” please stick it up: is a $1 improvement is worth $5 in equity. (this formula has proven itsself time and again on a rehab type of residential projects)Well my question is does anyone have any clue as to estimate for value. Here’s some more stats.3 floors all set up in individual offices ,elevator,brick construction, concrete between finished basement and first floor,Three phase wiring, Flat roof ( needs replaced $72k) central air and heat,(needs upgraded $85K)26k sq feet, downtown in major midwest city,350k+population potential revenue $31,999/month gross (@$16/sqft doublenet)$21,000 net.avg. caprate for area hovers between 8% and 10%. Building 2 doors down for sale claiming 10% cap rate/6000sqft. ,currently rented /minor, tlc needed asking $195,000.1 block away from wyndam hyatt, accross street from chamber of commerce, 2 blocks from county court house.2 blocks to convention center.not a lot of vacant bldgs.maybe 10 with in the general area 5-6 block radias.Any Ideas on value? :director:
I think you’ll get better answers if you actually disclose what city it’s in, every market is different.
Kansas City
Just a hunch but I bet your utilities would be almost double. If you can calculate the cash flow then you should be able to calculate the value. Most people rely on multiples to calculate value. The problem I see is the uncertainty of what you’ll get in rent and what utilities will cost.
I’ve never heard that $1 in improvement is worth $5 in equity. I believe that $1 in improvement might be worth $2 in equity IF they are strategic improvements. Not all improvements are created equal. For example, spending $20,000 on a swimming pool might actually lower the value of the house to most buyers and shrinks the group of buyers that would be interested in the property.
Anyway, what needs to be done to your building is neglected maintenance. You won’t get $5 for every $1 invested on just fixing things that would normally be intact.
Finally, I think that you’ve answered your own question. If you believe in cap rates for determining value, then determine NOI. Value = NOI divided by cap rate. Personally, I’d do a more thorough evaluation than cap rate, but it’s somewhere to start.
Mike