A commercial property (for medical professionals) in a medical complex with an annual gross rental of $153,000 is on sale for $1,100,000.?
Annual expenses (HOA, property tax, utilities, etc) are shown as $69,000. Rentable area is 9,990 sq feet. All five units are rented to medical professionals. Is that a good price?
- SlumlordLv 73 months agoFavorite Answer
The net operating income is 153k - 69k = 84k. Dividing NOI but price gives 84k /1100k = 7.6%, So 7.6% is the cap rate. This is a good cap rate but not a great one (fyi they probably set the asking price by saying at what price would we be giving the buyer a good cap rate).
Compare it to other deals in the area and if their cap rates are generally lower then its a good deal. If they are mostly higher then its a bit overpriced. To me it sounds like just an average deal.
Also expect the numbers they gave you to be a bit rosy (maybe the income is ok but expenses are probably a bit higher, maybe expenses are ok but income is often lower due to vacancies) so expect the true cap rate is maybe a bit lower, but also expect any other properties you compare it to will do the same sort of stuff. In other words if you buy the place you may not get quite that cap rate but the competitors are also a bit exaggerated with their numbers.
One more thing. Not sure about the rents but I agree with another responder that the given expense number sounds low to me. Its maybe possible if they are managing the property themselves but did you want to manage this place if you bought it?
- Anonymous3 months ago
$69,000 includes approx $48,000 annual HOA fee. $3500 annual maintenance cost and $2800 elevator maintenance cost. HOA covers parking maintenance, externals including roofing, security personnel, common area maintenance
- Anonymous3 months ago
There is absolutely ZERO way that $69k expense figure is correct. Who maintains the property? Who manages it? What about legal and accounting expenses? Who washes the windows and cleans the parking lot?
ETA: You think you can maintain a 10,000 sq foot commercial property for $3500/year? You are either incredibly inexperienced or certifiably insane.
- A HunchLv 73 months ago
We have NO IDEA if it's a good price because we have no idea what property values are in your areas.
Is it a good investment?
Does the annual expenses include maintenance and repairs?
Based on the numbers you provided which I would assume is on the low side, you aren't going to see a dime of profit for 20 years, unless it increases in value and you can sell it.
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- SandyLv 73 months ago
find a realtor and give them all this information and ask them what the comps (comparable) are in the area and if this rent is good. (BTW always lowball them a little, if the place needs renovations).