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How to Determine the Value of a Commercial Property by Tony Martinez
While we typically train our students in residential real estate investing, there are always those who are very interested in purchasing commercial properties. If you take a look at a tax deed or lien sale list, you’ll notice the bulk of the available properties are residential. You will at times stumble across restaurants, office buildings, and commercial multi-family units as you complete your due diligence. This begs the question, “is purchasing a commercial property lien or deed a good idea?”
The answer to that question is complicated, as are most aspects of real estate; this is because you need to consider many factors before making your decision, and one of the most important factors is the value of that commercial property.
Determining the value of a commercial property is not as simple as it is for residential properties. Residential homes and lots are subject to market forces, it’s really easy to find out if a market is appreciating or forecast to appreciate in the near future. It is also very easy to compare similar sales. Commercial properties however are not completely subject to market forces, and it can be difficult to find similar recent sales in the area. Their value is also heavily based on the income they bring in.
So, to determine the value of a commercial property, you will want to focus on the amount of income the property will bring in on an annual basis (and projections for the coming years). Using a 6-plex rental building as an example; to find out unit pricing, you would look to see if any of the units are available for rent or were listed for rent very recently. It’s easy to find that history and info online. You could also call the property management company and pose as an interested tenant to get price info. If the information on the commercial property is proving hard to come by, give a local commercial broker a call for help.
The level of research needed to determine the value of a commercial property is more complex than a residential property, but that does not mean you are not capable of it. Experiment with researching the next commercial lien or deed you find on a list, you may be surprised by your ability to branch out and be successful at researching what may have at first been an ‘intimidating’ investment.
Tony Martinez is the Co-Founder and Co-Chairman of the US Tax Lien Association, which is an organization that is committed and dedicated to helping others achieve total financial freedom through the power of investing in Tax Lien Certificates. With over 20 years of expert experience, Tony is the world's #1 authority on the subject of creating enduring wealth through the little know strategy of investing in Tax Lien Certificates, which gives anyone the opportunity to earn guaranteed fixed rates of returns of 18% – 36% interest per year, and acquire valuable real estate for approximately 10% of market value.