Commercial Real Estate Appraisal

  Income Property Owners, How to Establish a Rental Rate Commercial Property Let's say your property is worth $1,000,000 and is a 10,000 SF building on a site without excess land. Step 1, Apply an 8.0% return to the value if your hypothetical prospective tenant is creditworthy. The resulting figure of $80,000 is the indicated annual NET Rent of $8.00 PSF. Income Summary wiil be:  $80,000 Projected Gross Income = $6,667 per Mo Rent Less 10% vacancy & collection Loss = $72,000 Effective Gross Income (EGI) Less: 2% Reserves for Replacement = $70,560 Projected Net Income (NOI)      Next Step Divide $70,560 / $1,000,000 = 7.06%, Round to 7%, this is your "Cap Rate" This analysis assumes that ALL operating Expenses are "passed-thru" to the tenant including a management fee . Cross Check , PSF Basis $7.06 / $100 PSF of Bldg Value = a 7% Net Return on Value or "Cap Rate". Market support , establish your own "ratio" by comparing asking rents to v...