The income approach is one of three techniques commercial real estate appraisers use to value real estate. Compared to the other two techniques (the sales comparison approach and the cost approach), the income approach is more complicated, and therefore it is often confusing for many commercial real estate professionals. In this article, we’ll walk through …
Appraisers use three different methods to estimate the value of a property. The income approach considers the value as the present value of future expected cash flows generated by the property. It is most accurate when valuing commercial properties with rental income in active markets. The sales comparison method relates the estimated value of the …
The concept of highest and best use is one of the fundamental principles that underlie real estate appraisal. Highest and best use requires that the appraisal considers not just the current use of the property but also the potential value associated with alternative uses. The Appraisal Institute has four tests that appraisers can use in …
It’s important to understand the math behind present value calculations because it helps you see what’s actually happening inside a calculator or spreadsheet. And once you understand the math, the calculations become much more intuitive. Yet, many people struggle with understanding present value formulas and calculations. In this post we’ll take a deep dive into …
Understanding supply and demand conditions is an important step in the commercial real estate market analysis process. Yet, analyzing supply and demand for commercial real estate can be challenging because it involves sorting through large amounts of data from different sources. In this article we’ll walk through an example supply and demand analysis for retail buildings …
Forecasting industrial real estate supply and demand is an important task for many commercial real estate professionals. For example, developers interested in constructing a new industrial park need to consider whether there is sufficient demand to support the new development. Supply and demand conditions also affect market rents and vacancy rates, which in turn determine …
A market analysis provides useful information needed to evaluate the supply and demand conditions for particular types of real estate. For example, investors considering the purchase or development of office space value the property based on future expected cash flows generated from rent. In order to forecast future rental income, the investor or developer must …
One of the most important ways to use all of the data gathered in a real estate market analysis is to examine the supply and demand factors for a particular type of real estate. For example, an investor considering the construction or purchase of a new multifamily residential property uses the market analysis to determine …
The sources and uses statement is important to understand in commercial real estate transactions. Yet, there is often a lot of confusion around what a sources and uses statement is and why it is needed. In this short article, we’ll take a look at the sources and uses statement, discuss how it is used in …
One of the most important components of a real estate market study is an analysis of government regulations and how they may impact the subject property. The reason for this is that government regulation may legally prevent an owner from using a piece of property in desired manner. Alternatively, the costs of adhering to government …