hello, out there!

i came across a landlord who wants to sell his commercial property. It's a retail property with 1 tenant occupied and 2 empty spaces. 2 spaces that are empty is about 1760sf and one that occupied is about 1600sf. the building size is 6000sf and lot is about half acre. it's located in pretty low demographic area but it is one of the most lease demanding area.

i've gone through loopnet to look for similar buildings but they seem to be priced higher than i thought. i found a few but they are either fully leased or in a completely different location.

can anyone tell me how to come up with the right price on a piece of property like that?
oh by the way, i asked the landlord what he thinks the property is worth and he wasnt sure. he wanted me to come up with the figure.

thank you and look forward to hearing from you.

You go by cap rate. Older retail buildings sell for higher caps.

Since 2 spaces are vacant the retail space has potential but currently is over 50 percent vacant.

Any buyer in this situation is going to offer a low amount.

Your seller would be better off getting tenants at a good lease in there with nice contracts and then market the property fully leased if the want top dollar.

If they want to dump the property and get rid of a problem then an investor would love to get it and rent it out themselves. It's all about what the seller is willing to do to get a certain price.

The exception to this is if a developer wants to buy the land 1/2 acre and put something else there or assemble that land with parcels around it for a bigger project.

If you dig around on Loopnet there are free tutorials on cap rates and valuation.

good luck

hey super realtor. thanks for responding.
the two space has been vacant for some time and the only tenant that's there is thinking about downsizing to a smaller space.
landlord is fully understand the way the market is now and it seems to me that he doesn't want to deal with it any more.
now, this is just my opinion.

however, i want to list the property but how do you come up with the cap rate when u don't even know what the selling price is.

You look up formula for the cap rate and then you can see asking price based on a 6,7,8,9,10 cap etc.

You have to go by income to get the cap.If there is no income then you evaluate differently. Once the seller sees what they would get for a sale sprice they will want ti fully leased before they sell.

If there is no rent it is just a structure someone is buying with non-productive debt (no cash flow) and they will have to make it productive equaling more risk and LESS money offered to the seller.

Good luck.

For the most part I agree for with comments above, however keep in mind that a Cap Rate is only a measure of the first year return. There is a risk premium here that is determined by the quality of rent payment and right now Retail may be somewhat of a high risk and your cap rate could actually go up next year in turn bringing the value down. Sounds like you are on the right track in looking at the rental data and demographics. Good luck!