How to do an Income and Rental Assessment in Commercial Real Estate Brokerage

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Not all commercial property rents are the same.

The income for a commercial Investment property will have a direct impact on the potential price that sale. On that basis the income needs to be fully understood and investigated as part of the preparation for listing.

(N.B. these ideas are also sent out to regularly to our friends in Commercial Real Estate Online Snapshot to help amplify brokerage results…. Get your access here)

Any agent or broker listing an Investment property should take the time to review everything that could have an impact on current and future property income. Look for the strengths and weaknesses that apply to the property income stream and the cash flow for the asset.

Strengths and Weaknesses

The buyers for any Investment property will always undertake a due diligence on the listing and the location; weaknesses will be found so make sure you understand where those weaknesses are and how to address them. They will be looking for things that will have an impact on property performance over time. Some problems in cash flow will have a direct influence on a negotiation for property purchase.

Rental Assessments

Here are some ideas to help you review income performance for the assets that you might take to the market for sale as an investment:

  1. The gross income for the asset in today’s terms will always be the starting point of an income assessment. Look at the actual volume of rental created from the existing leases and the tenants in occupancy. Understand the elements of cash flow that make up the income stream. Those elements will usually include rental, rental by type, outgoings, special licensed areas in the property, casual rentals, and permanent tenants.
  2. Look at the cash flow per month over a period of time. Understand the gross rental achieved each month over the last 12 months. There will be patterns to the income stream driven by the tenants in occupancy. If there are vacancy factors in the property to deal with, then that will have a reflection in the collective rental. Review the number of vacancies and the negative impact that those vacancies have on the cash flow for the asset.
  3. Understand the vacancy threat that maybe upcoming in the property tenancy mix. Some tenants will be leaving or relocating within the property, and on that basis you should develop a full understanding of how those vacancies will be handled. Some vacancies will be harder to lease than others.
  4. Property expenditure on a monthly basis will reduce the gross income to a net income. The age of the asset will have an impact on property expenditure and maintenance. Compare the expenditure in the property to other similar properties in the same location. Look at the averages, and in that way understand how your asset compares.
  5. Some of the rentals in the property would have been determined on a market rental basis. Compare that market rental to other properties of similar type in the same location. Is your property correctly rented, or under rented?

Simple strategies of investigation including these issues mentioned will help you fully understand the income stream for the investments that you sell, lease, or manage.

Different Income Streams

From the examples provided you can see that there are many different elements of income to look into and review. Some of those income factors can be improved over time, and that’s where the skills of a leasing and or property management specialist are quite valuable.

As an agent or broker, develop a comprehensive investigation process applying to the analysis of the income stream in any investment performance. An income checklist will be very useful as part of that process.

(N.B. these ideas are also sent out to regularly to our friends in Commercial Real Estate Online Snapshot to help amplify brokerage results…. Get your access here)

Author: John Highman

Commercial Real Estate Broker, Coach, Speaker, Author, Broadcaster.