One of the first questions that you will ask yourself while looking at a new Burlington office space to buy is what the actual value of the property is. It is an important question as you may feel confused how much to pay to actually buy the property. Getting the answer of this question will help you to purchase the right commercial real estate property that will be worthy of.
In most of the cases, the commercial property sellers decide the pricing of the properties on the basis of the future values, but the buyers can only pay for the present worth of that property. Besides, the banks also lend money on the present value of the properties and the present income, not on the basis of the potential of the future income or the future values of the properties.
How to judge the values of the Burlington commercial real estate?
How any investor selects to value any property, mainly depends on the sophistication of the purchaser and also on the size of the property. But there are actually three methods to value the Burlington office space or Burlington commercial real estate property. These are mainly:
- Cost approach
- Direct comparison approach
- Income approach
Details of every method through which the values of the Burlington commercial real estate properties can be judged:
- Cost approach: Also known as the replacement cost approach, is not that common. The method is just what it sounds like deciding the value of what it would charge to replace the entire property.
- Direct comparison approach: This method uses the recent sale details of the similar properties similar in the sizes and the locations as the comparable. This procedure is quite common and this method is often used along with the income approach.
- Income approach: It is the third and the most common method of valuing the commercial real estate properties. There are two types of income approaches used to value any property. The simplest manner is the capitalization method, which is also known as the cap method. It is basically a ratio mainly expressed in the percent, which is calculated by separating the net operating income into the property price. Another method is the Discounted Cash Flow method or the DCF method. This method is often used to judge the values of the larger commercial properties. This method is a little bit of subjective.