Indiana is home to nearly 500,000 small businesses.
With Indianapolis being the commercial hub of the state, it's a great place to invest in commercial property. If you're an investor, you'll find plenty of viable commercial spaces to add to your investment portfolio. Being spoiled for choice means that you'll have to take a few key measures to determine which property will yield the best ROI.
The most important measure is a commercial property valuation. In today's post, we'll walk you through 4 important steps to secure the most accurate real estate analysis. Keep reading and you'll have a better sense of Indianapolis' commercial real estate market so you can make the best possible investment.
Compare Properties
The fastest and simplest way to get a sense of a property's worth is to compare it to other similar commercial spaces that have recently sold. Comparing commercial properties is far more complex than comparing residential ones. There are numerous key factors to consider that'll help you get a more accurate valuation, such as:
- Size of the property
- The property's location
- The types of amenities
- Commercial uses
Find a property of similar size, location, and use, then find out what they're charging their tenants. This will give you a strong idea of what you'll be able to charge your potential tenants each month for rent. Once you have an idea of your rental income, you can better determine a property's overall value.
Income Capitalization
A more numbers-based property worth assessment tool is the income capitalization approach. It helps you estimate the value of a property based on the amount of income it generates, as mentioned above. This approach differs from property comparisons in that it's a more in-depth and accurate way to calculate income.
Start by estimating the net operating income. This involves using your rental income estimate from property comparisons and then deducting operating expenses. With this, you can understand your capitalization rate, which is the rate of return on investment based on your net property income.
Divide the net operating income by the capitalization rate and you'll have a property market value.
Market Condition
All of the above are integral in getting an accurate depiction of the property you're investing in. You must also consider the market, however. If there aren't as many small businesses looking for commercial property, all of the numbers you get from comparisons and calculations won't mean as much. When the market is flooded with new businesses, commercial space is more valuable, but less so when fewer businesses are opening up.
Get Help with Your Commercial Property Valuation
These are the most important aspects of commercial property valuation, but they aren't everything. If you want a truly in-depth look into whether or not you should invest in a particular property, you'll need a professional valuation from a real estate professional.
For those in Indianapolis, that's going to be PMI Meridian Management. As the foremost commercial property manager in the city, we've got a unique grasp on the commercial property market. Contact us today and we can help you with your investment property valuation.
