Find out how much your commercial property is worth

Average commercial real estate loan rates by loan type

Depending on the type of loan you choose, interest rates could be as low as 2.231%. Government-backed loans such as SBA loans from the Small Business Administration or USDA loans from the Department of Agriculture and conventional commercial mortgages will generally offer the most competitive interest rates and the highest loan-to-value (LTV) ratios.

Loan Average Rates Avg. LTV Ratio Typical Loan Size Typical Max. Term SBA 504 Loan2.231%-2.399%90%$5.5 million (max)25 yearsSBA 7(a) Loan5.50%-11.25%85%$5 million (max)25 yearsUSDA Business & Industry Loan3.25%-6.25%80%$1 million+30 yearsTraditional Bank Loan5%-7%80%$1 million10 yearsConstruction Loan4.75%-9.75%75%$3 million+36 monthsConduit (CMBS) Loan3.04%-4.60%75%$2 million+30 yearsInsurance Loan (incl. Life)2.44%-5.41%75%$5 million+30 yearsFHA Hospital/Senior Care Loan2.60%-3.45%83.30%$5 million+40 yearsFannie Mae Apartment Loan3.01%-4.37%80%$1 million+30 yearsFreddie Mac Apartment Loan3.21%-3.55%80%$1 million+30 yearsBridge Loan4.20%-13.20%80%$1 million+36 monthsHard Money Loan10% – 18%60% – 80%$150,000+12 months

The application process for a traditional commercial real estate loan requires a lot of time and documentation to complete, and prime or near-prime borrowers are most likely to qualify. If you have a lower credit score or less-than-stellar business finances, or the financed property needs renovation, you’ll pay higher interest rates and have to put more money down in order to get a conventional commercial real estate loan. In this situation, you should consider commercial mortgage companies that specialize in subprime lending or look for bridge or hard money loans.

Video

Tracking Your Homes Value

We’ve watched home values go up most of our lifetimes. Rising home prices have a significant effect on our wealth, and ability to borrow. Even if you don’t plan to sell your home, watching your home’s value increase over time can be a lot of fun.

Many people have used their home equity smartly to consolidate personal debt or to invest in building a business from their home. While it’s important to always understand your asset values, try not to get attached to the ups and downs too much.

Remember, these websites and others let you watch your home’s value grow aren’t exact, and the only time you’ll get a true answer to the question “how much is my home worth?” will be when you go to sell or borrow against the home.

If you want “the real thing” – as in, a price that reflects every factor that goes into a home’s sales price – you should meet with at least 2 or 3 realtors or mortgage lenders to get price suggestions.

Chances are, a realtor will be able to offer more insight into your local market than any online real estate tool ever could.

My homes value went down. What should I do?

While home values across the board have increased, there could be factors beyond the homeowner’s control that can cause prices to decline.

“Local political issues, climate changes, transportation and employment opportunities — or lack of these last two things — can influence home values,” says Gerard Splendore, an associate broker with Warburg Realty in New York City. “Selling may not be a good idea, unless it is apparent that values will continue to decrease.”

If you can wait out a downturn rather than making a rash decision, that may often be best.

“Home property values are typically influenced by the current economic climate, as well as the supply of houses on the market, which will change over time,” Duffy says. “If you can prolong moving, housing prices will eventually start to rebound.”

Home Lending Customer Service

Go to Chase mortgage services to manage your account. Make a mortgage payment, get info on your escrow, submit an insurance claim, request a payoff quote or sign in to your account. Go to Chase home equity services to manage your home equity account.

5.The Cost Approach

The cost approach to valuing real estate states that property is only worth what it can reasonably be used for. It is estimated by combining the land value and the depreciated value of any improvements.

Appraisers from this school often espouse the highest and best use to summarize the cost approach to real property. It is frequently used as a basis to value vacant land.

For example, if you are an apartment developer looking to purchase three acres of land in a barren area to convert into condominiums, the value of that land will be based upon the best use of that land. If the land is surrounded by oil fields and the nearest person lives 20 miles away, the best use and therefore the highest value of that property is not converting to apartments, but possibly expanding drilling rights to find more oil.

Another best use argument has to do with property zoning. If the prospective property is not zoned for residential purposes, its value is reduced, as the developer will incur significant costs to get rezoned. This approach is considered most reliable when used on newer structures and less reliable for older properties. It is often the only reliable approach when looking at special use properties. 

What Is Multifamily Real Estate?

Multifamily real estate is commonly thought of as apartment complexes, which can host more than one space to be rented out. There is a multitude of strategies when it comes to real estate investing. Still, when narrowed down to the category of residential real estate, there are two main types of properties: single-family and multifamily. As one might assume, single-family properties are designed to fit the dwelling needs of up to one family. As mentioned above, multifamily real estate comes into play when a property provides more than one rentable unit. Investors may choose to pursue the multifamily real estate investing niche due to the unique advantages it has to offer.

3. Income capitalization approach

This valuation method is based primarily on the amount of income an investor can expect to derive from a particular property. That projected income could be derived in part from a comparison of other similar local properties, as well as from an expected decrease in maintenance costs.

Say a building is purchased for $1 million, and the expected yield is 5%, based on local market research. That $50,000 per year in expected income could be enhanced by tightening inefficiencies or passing along other associated costs to the tenant, like electric or water usageAll expected future income is discounted to reflect present value.

6 Ways to Determine Value of Commercial Real Estate

Compared to houses and smaller multifamily rental properties, commercial real estate can be much more complicated to value. Here are six commercial property valuation examples to help determine the value of commercial property.

1. Sales comparison approach

Also known as “pulling comps” or the “market approach,” the sales comparison approach for valuing commercial real estate relies on recent sales of similar property in the same market or submarket.

2. Cost approach

Often used for special use property or when sales comparables are difficult to find, the cost approach determines CRE value by considering the cost of building the property from the ground up, including the land’s current value, materials, and construction costs.

3. Income capitalization approach

The income capitalization method uses the net operating income (NOI) a property generates to determine the property value compared to similar properties in the same market. For example, if office buildings in the Houston CBD are trading at a 6.7% cap rate and a similar office property is generating an NOI of $500,000 per year (before debt service), the income capitalization approach would value the building at $7,462,687 ($500,000 NOI / 6.7%).

4. Cost per rentable square foot

This method for determining the value of commercial real estate subtracts the rentable square footage from a property’s total square footage, then compares the cost per rentable square foot to the average lease cost. If an office building with an asking price of $7 million has a total of 30,000 SF with 5,000 SF used for common areas, the cost per rentable square foot would be $280 ($7 million / 25,000 SF). An investor can then compare the cost per rentable square foot to the market rent to project the potential gross rental income.

5. Cost per door

The cost per door method is mainly used to quickly and easily compare one apartment building’s value to another. For example, if an apartment building with 30 units is priced at $6 million, the cost per door is $200,000. Note that this method does not consider factors such as unit size or the number of bedrooms per unit.

6. Value per gross rent multiplier

Gross rent multiplier (GRM) is another simple way to compare one property to another and is a useful tool to narrow down purchase options before conducting more thorough due diligence. To calculate GRM, simply divide the property purchase price by the gross annual rent. If a property generates $300,000 in gross rental income each year and is priced at $4.5 million, the GRM would be 15 ($4.5 million / $300,000). The lower the GRM is, the more potential a commercial property may have, everything else being equal.

How can I add value to my home?

You don’t get a second chance to make a first impression, and this bit of wisdom can apply to your home and its value.

“Your property’s curb appeal does make a difference,” Duffy says. “Make your home welcoming and tidy — cut your grass, trim any shrubs and add some new plants or flowers.”

A fresh coat of paint either on the interior or exterior of the house will more than pay you back for the money spent, Duffy adds: “This is one of the most cost-effective ways to improve value.”

A minor bathroom or kitchen update (as opposed to large-scale renovations) can also help improve your home’s resale value. You can simply replace an outdated sink, old tiles or dated light fixtures to give these spaces a refresh.

“It also pays to install a new garage door,” Duffy says. “Some reports estimate a new garage door can increase home values by 4 percent — great curb appeal does matter.”

Summary

Whether choosing to utilize a property value estimator tool or make every calculation by hand, investors are sure to develop an appreciation for property evaluation. Property valuation estimators are critical resources that allow investors to identify the difference between good and bad investment deals. The property’s purchase price only scratches the surface in terms of the value a property has to offer, especially in the long run. Familiarize yourself with the above methods for determining capitalization rate, gross rental multiplier, and more; by practicing these calculations now, you will be better prepared to evaluate (and compare) investment opportunities when it counts.

Don’t invest without knowing your numbers!

Click the banner below to download WealthFit’s FREE Cashflow & ROI Calculator for rental property investments.

Tags