Real Estate ArticlesTenant Quality Affects Real Estate ValueLearn Real Estate Secrets. Real Estate Finance Secrets That Can Make You Rich. I was looking through one of my Valuation Reports the other day, and found a nice quote which demonstrates how valuers evaluate commercial real estate. "Well located suburban properties, securely leased to national tenants, with modern building improvements, represent prime property investments and sell on yields of between 6.5% and 8.0%... Properties that do not possess all of these attributes but have reasonable lease covenants of say 5 years, are selling on returns of 8.5% to 9.5%, depending upon location and building quality. " FSBO Tips - Real Estate Secrets Real Estate Secrets Will Save You Thousands. Now, your mileage will vary - the numbers themselves will change from region to region. But the key is this: a better quality tenant will give you a more valuable property. You see, it's all about risk. With a big, national company, your tenant has a strong financial backing, which means you can have a lot of confidence in your income. Real Estate Forms Package. Download 60 Real Estate Forms, for a one time fee. 3 Formats, all states. With a smaller tenant, no matter how well-intentioned or business-smart they are, there is inherently more risk. One big lawsuit, one marital split, one fraudulent employee, or some unexpected occurrence, and their business (consequently, your income) is under threat. People are willing to pay more for a lower risk. Back to my valuation report. The valuer went on to value my property using a capitalization rate of 8.75%. This reflected the fact that my property had a single, independent operator. Now, I've got a chance to re-lease the building, and I'm going after a national tenant. Real Estate Investors - Discover How To Our Private Lending PowerPoint Presentation Kit Will Have Private Lenders Calling You To Lend You Massive Amounts Of Money. We p. Here's the math, assuming the valuer chooses the mid-point of the respective ranges: Let's say my property brings in $50,000 per year in rent. With a lower-quality tenant, my property gets valued with a capitalization rate of 9%, giving it a value of $556,000. With a national tenant, my property gets valued with a capitalization rate of 7.25%, giving it a value of $690,000. So, switching from a standard, independent tenant, to a strong national tenant will make me $134,000. Even if the rent doesn't change at all. That's a massive difference! Makes it worth acquiring a good tenant, doesn't it? Some people are surprised by this. It's the same land. It's the same building. Surely the value can't just change like that? What you have to remember is that a potential buyer doesn't just buy the land and building. They also acquire the tenant and the lease. That's why the value can change so significantly overnight. Tenant Quality Affects Property Value! Tony John is an experienced investor, who specialises in Commercial real estate investment. Get his free email course now, and find out how easy it is for YOU to get your first real estate investment. http://www.freeinvestmentcourse.com
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