Raw Land, Land with distressed business

[jlasalleinc]

My first question is, how do you determine value of raw land. Also, how can you determine value of distressed commercial property. For instance, land with a run down building on it, basically a distressed commercial property.

Do you use cap rate for properties that don't have potential rental incomes, such as gas station, convenience stores etc....

[tatertot]

Cap rate is much more useful for business that is not a real estate investment, so yes, you use cap rate for your gas station and convenience store.

Value of raw land is whatever the market is paying for similar land in your area.

The fair market value of a run down commercial who be fair market value for the property all fixed up, minus the costs to bring it to a sparkling useable condition. As an investor, you don't want to pay anywhere near that much for a run down commercial.

Value of the property, all fixed up and pretty, is based upon what sort of income the property will generate in rent.

Be aware that commercial has to be renovated to a high standard. Your tenants will not be Section 8 and they must be able to give confidence to their customers.

[davewindsor]

Be aware that commercial has to be renovated to a high standard. Your tenants will not be Section 8 and they must be able to give confidence to their customers.

If they are AAA tenants like McDonald's and you want to charge maximum rents, yes.  I've been to dozens of downtown businesses in older buildings run by Chinese and Indians that were complete dives--plaster peeling from sagging ceilings from leaky roof problems, cracks in the business window, tiles missing from the floor, you name it..  A section 8 tenant couldn't find better accomodations if it were rezoned and rented as a bachelor apartment.  There's this one Chinese woman who is the cheapest tailor and shoe repair person in town and she's been in business for years.  Another offers the cheapest haircuts.  The confidence they give to their customers is in their lower prices.  There's a renters market for any commercial building with utilities on as long as the rents reflect the condition just like section 8.

[joolkano]

When you're looking at this type of investments, start thinking highest and best use. You may want to start out with the towns building dept., zoning office, city planning to find out what will they allow to be built on that ground.

If let's say the city will allow a strip mall to be built on that land then you can do your research as far what type of businesses will be interested in having a location there and what the going rent is per square foot. This is give a projection and come up with a valuation for the project.

There's gonna be a lot of research involved but those that are willing to do the leg work are the ones who will reap the benefits.   

Good luck.