3 Important Reasons Why You Should Get a Current Opinion Of Value – contact a Sterling CRE Advisor today!
As you are well aware, the commercial real estate industry is a numbers-based industry. An asset is worth $x,xxx,xxx because it has xx,xxx square feet and each square foot could generate $xx,xxx – $yy,yyy income. The irony is not lost on me, even though I just used letters to represent numbers, my argument is still the same, the commercial real estate industry is a numbers-based industry.
Regularly running calculations to keep up to date on a properties valuation sounds like a lot of work, and it can be, but there are many reasons why you, as an owner/asset manager, would want to make updating your property valuations a regularly scheduled event.
FuelCRE wrote a blog post on this very topic, highlighting reasons such as ownership changes and market awareness.
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Reason 1: Know your Purchasing Power: “You want to know if you can purchase more property.”
As a successful real estate property owner and/or manager, you need to track a lot of different numbers in order to operate a profitable business and be able to scalable your real estate investment portfolio. One of the most important numbers to track is your “Purchasing Power” or “your ability to purchase more properties.” An efficient owner/manager should always be aware of their purchasing power so that when the next good deal comes across their desk, they already know if its something worth investing time in. If you plan to finance the deal, one of the first questions a bank is going to ask is “Do you have the cash flow and equity to support the loan?” Knowing how much equity you have in your portfolio is one of the first steps to buying more real estate.
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Reason 2: Market Competition: “You want to know how your property stacks up against other properties in the market.”
Even if you are not looking to sell, you as a prudent owner/manager should always keep a finger on the pulse of the market and know how their portfolio performs compared to others in the market. A regularly updated property valuation accomplishes just that; the valuation looks at performance of the property and compares it to other properties in the area and what those properties are valued at. One output of the property valuation is current market lease rates. You can compare your current lease rates to market lease rates and look for opportunities to increase revenue.
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Reason 3: Quickly Evaluate Impact on Returns: “You want to be able to efficiently and quickly evaluate the effect an external change such as a property tax increase has on your returns.”
As a real estate owner/manager, you know there are plenty of things outside of your control that can affect your rate of return. Property taxes are one of those. Property taxes can change regularly and have a direct effect on your cashflow and properties value. Without an up to date property valuation, you really know how the change in property taxes will affect their investment. Property taxes might effect your properties value a lot or relatively little, but without up to date valuation, you really won’t know. You might even find that although your property taxes increased, your ability to increase rents to market value might more than cover the increase in expenses, netting you more cashflow and more equity in the property.
For the reasons listed above and more, it is good practice to have an updated property valuation on hand. Sterling CRE Advisors offers comprehensive Property Valuations to owners, asset managers, portfolios managers, banks, and other interested parties. We look forward to your call!
Will Holm, Commercial Real Estate Advisor
Contact: Phone | Email
