This blog topic dawned on me this morning when I was out for a walk with my dog Charlie in the Commercial heart of Streetsville. If you are a small business owner or investor looking to buy or sell a commercial property in the city of Mississauga- read on. Here are helpful tips for commercial real estate buyers.
I know many small business owners have bought and sold Real Estate – many are home owners and know for how much Neighbour’s homes have been sold. In order to find “Market Value” for a subject residential home, Real Estate Agents use comparable SOLD homes to determine the value. The Realtor will add +/- adjustments and come up with an adjusted market value for the subject property.
In commercial real estate, no two properties are similar. Some are larger or smaller, different locations, more or less building amenities, construction styles, and permitted uses vary with city zoning bylaws etc.
Commercial Real Estate agents use a different approach called the capitalization rate. This CAP-rate is the ratio of Net Operating income (NOI) divided by the Commercial property value. This rate is established by recent properties that have sold in the area of interest. It represents the percentage return an investor would receive on an all cash purchase.
Capitalization rate = Net Operating Income / Purchase Price *(6% in Mississauga based on historical sales)
We’re almost done! here is an example!
A buyer is looking at purchasing a commercial property in Streetsville. The property is listed on Multiple Listing Service(MLS) for $2.2M dollars. The seller has advertised the net operating income is $104, 360 yearly – the property value based on the capitalization rate is $104,360 / .06 = $1.74M
This property is over-priced by $460,000
I’ve had the opportunity to help many small business owners in Mississauga with their Commercial Real estate needs.
If you have any Real Estate questions , feel free to contact me at 647-223-0237 or visit my website at www.scottbrubacher.com. Your Streetsville Real Estate Agent!
Scott Brubacher – Real Estate Broker – Royal LePage Meadowtowne Realty