Commercial Real Estate - How to Value a Property

  for this lesson, we will talk about property valuation. how do youproperty values Sydney, how do you know much, how do you know what a property is worth there is three primary.  methods first one we'll start with is the sales comparison method sales comparison is what you're going to use a lot for if you're flipping houses or if you're rehabbing a house oftentimes people use this for residential go ahead and spell it out fully or if it's something they're holding short-term as opposed to a long-term hold, so the way that sales comparison works are you have an area say this is your neighborhood. now you've got an area here some streets small houses here's the house that you're going to buy and probably so after you fix it up or whatever you do all right let's say there's another house right down here same kind of house same number of square feet very similar location this sold for two hundred and fifteen thousand within the last six months .then there's another one over here that sold for say one hundred ninety thousand in the last six months all right so, if you do that if you use the sales comparison method. you will value this house that you're buying or selling based on other sales that have occurred of similar houses similar buildings in that same area that is these sales comparison method.  another method that you'll use is the capitalization method so we've talked abo ut cap rate before if you need a refresher you can go back to the video where we talked about cap rate price and Noi so the comparison or say the cap capitalization. method pretty much looks at the cap rate what is the cap rate for a given area is it 8% cap rate or even an area with the 12% cap right so you want to find what your cap rate is in your area and figure out what the property is worth based on that pretty much if you're buying a cash flowing  property to go. like this what you're doing is buying an income stream so what you want to do just figure out what's the not once you have the not figured out and you know what the cap rate is for a certain area let's say you're in an area with a 10% cap rate then you can find the price how much that property is worth so let's just go ahead and say that you've got a property with a Ni of $50,000 your area has a 10% capitalization rate that's what properties are selling for so your price will be 50 sorry $500,000. the way that we got to that number was by taking the Noi and dividing it by 0.1 once again if you need a refresher on how the capitalization of how the cap rate works in relation to Noi and price you can refer back to one of our previous videos let's go ahead and separate these guys.  okay so method 1 sales comparison method 2 capitalization  method 3 is called replacement cost method so you bet an office building you're thinking about buying it if you're going to use the replacement cost method to figure out how much to pay for this office building you want to find out how much it would cost to build a brand new office building okay how much would it cost to build a brand new office building in a location near the one where you're buying it on land that is just as desirable or as little house as little desirability as the original office building and also to build it with the same quality of materials it's pretty much imagine all things are the same how much would it cost to build an office building exactly the same as this one that's how you use the replacement cost method so this one isn't used a whole lot mainly what you'll use as a sales comparison and capitalization method once again if you have any questions about these methods you know look it up online you can also shoot me a message and I'll be happy to elaborate if you guys have any comments if you've noticed something that I've done wrong here or if you have any expanding to do on these concepts.