How do you appraisal your commercial real estate with business ?

July 27, 2016

Well, Real estate and business are valued in different ways. 

 

Business Valuation :

Typically, they are valued based on multiples of the yearly Net Operating Income before income tax and depreciation. For example, 

 

If a business has a $ 250,000 net income, it can be valued at 2 to 3 times means from $ 500,000 to $ 750,000. The higher the net income, the higher the multiples. Large companies multiples can go up to 50 times. 

 

Real Estate Valuation :

 

Real estate are appraised three ways, Income , cost and market approach. Most licensed appraisers use those three approached. However, if you want to know quick how much your real estate can be appraised, you need to know the Cap Rate. Cap Rate me what is the return of your capital investment on the property. Older buildings goes with higher cap rate and small and newer building go with smaller cap rate mean higher values. For example.

 

If you have shopping center making $ 500,000 net income and it is in a nice area and very new, the cap rate that the seller willing to give buyer is smaller, like 6%. So, the value would be 

 

$ 500,000 / .06 = $8,333,333. ( Income Approach )

 

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