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When Losing Money on Commercial Real Estate Makes Perfect Sense - See more at: http://commercialappraiserky.com/when-losing-money-on-commercial-real-estate-makes-perfect-sense
|Posted on February 16, 2016 at 8:16 AM||comments (772)|
Today I am sharing an article written by a colleague, Russell Roberts, MAI.
Today, I’m going to explain how losing money on commercial real estate makes perfect sense. Hear me out.
One of the primary methods used by commercial appraisers to value many types of commercial real estate is the ‘income approach’. The income approach is an attempt to quantify how much a purchaser or investor would be willing to pay for the future benefits of owning commercial real estate. Basically, these benefits consist of annual income generated by the property and also any expected profit (or loss) when the property is resold.
To clarify, these benefits consist of:
Most often, commercial buildings are purchased with a combination of funds from an investors’ own pocket and funds borrowed from a bank or other lending institution. When the annual cost of the loan payment exceeds the annual cash flow from the property, the result is a a negative annual cash flow. I’m seeing this more and more these days for certain types of property – situations where borrowers are willing to accept a negative annual cash flow.
But how can this make sense?
Think of it this way: Those who attend college are in the exact same position. They’re willing to accept a negative annual cash flow (in the form of tuition payments) in anticipation of future income benefits (in the form of a better job). When you start seeing investors who are willing to accept a negative annual cash flow, it’s a sure sign that they are expecting property values to increase and to reward them in the end.
Why am I bullish about the commercial real estate market?
Because I’m paying very close attention.
- See more at: http://commercialappraiserky.com/when-losing-money-on-commercial-real-estate-makes-perfect-sense/#sthash.Qf0HPv92.dpuf
|Posted on November 5, 2013 at 2:20 PM||comments (271)|
Fall is here. In a few months the various Illinois Counties will be publishing the property assessments for the upcoming tax year. Are you fairly assessed? Taxes are used to support necessary services including schools, and county governments. However, no one wants to pay more than their share of these expenses.
I recommend comparing your property assessment to others in your community or neighborhood. This is easily accomplished, and most counties will permit free copies of the assessment records for property owners. Make sure you chose similar properties and property types. For instance, if you own a 3,000 SF office building, compare your assessment to other similar sized buildings of similar age and design in your area, and particularly city and county.
For an appeal, many jurisdictions will require you to provide sales of similar properties. Again, similarity is the key. For a four unit apartment building, use sales of other buildings having two to six units. They can be compared to your property on a price per square foot or price per unit basis.
If you feel there is a discrepancy or feel you are unfairly assessed, you can also consult or hire an appraiser or tax consultant to assist you. But know the difference. A Tax Consultant advocates your position, and usually charges a fee in proportion to the tax savings achieved. An appraiser, on the other hand, MUST act as an uninterested third party, advocating only for the property value. An appraiser generally charges a flat fee regardless of the outcome.
If you wish to hire an appraiser, feel free to contact us. We will be happy to look at your property and review your assessment.
|Posted on July 3, 2013 at 3:20 PM||comments (261)|
On June 25 2013, the Supreme Court in a 5-4 decision ruled in favor of the plaintiff in Koontz v. St Johns River Water Management District. The plaintiff (Koontz) owned a 14.9-acre tract of mostly wetlands near Orlando Florida. He wished to develop 3.7 acres and filed for a permit to dredge and fill that portion of his land. In exchange, he pledged to conserve the remaining portion of his land.
The St Johns River Water Management District required he only develop one-acre, or make improvements to government owned land nearby in exchange for a permit to be issued. Koontz sued, and the case has been dragging on through the courts for 11 years. Mr. Koontz has since passed away, and the land now belongs to his son, Coy Koontz, Jr.
The District contended that there was no 5th amendment issue under the Just Compensation Clause as the was no taking of the property. The court ruled in favor of the landowner saying in part " It makes no difference that no property was actually taken in this case. Extortionate demands for property in the land-use permitting context run afoul of the Takings Clause not because they take property but because they impermissibly burden the right not to have property taken without just compensation."
This is a victory for landowner's rights. It has become more common for government agencies to use their power to coerce concessions from landowners to their detriment. It will be interesting to see how other cases are decided in similar matters.