Commercial Building Valuation Calculator
Calculate what a commercial building is worth based on its rental income. Value office, retail, or warehouse properties professionally.
How the Commercial Building Valuation Calculator works
Enter the building’s rental income, operating expenses, vacancy rate, and local market cap rate. Calculate the property value using the income approach.
Commercial buildings are valued by their income, not comparables like houses. Get accurate valuations for investment decisions or sales.
How it works
Tutorial
Commercial buildings are valued based on the income they generate, not by comparing to nearby sales like residential properties. Learning to calculate value from rental income helps you evaluate investment properties, negotiate purchases, or price buildings for sale.
You have two options: use the calculator above for instant valuations, or follow this guide to calculate commercial property values yourself.
The Income Valuation Method
| Term | What It Means |
|---|---|
| Net Operating Income (NOI) | Rental income minus operating expenses |
| Cap Rate | Expected return rate in your local market |
| Property Value | NOI ÷ Cap Rate |
Step-by-Step Valuation Example
Here’s how to value a commercial building from income.
Step 1: Calculate Net Operating Income
Find the property’s annual profit:
| Income/Expense Item | Annual Amount |
|---|---|
| Gross Rental Income (10 units @ $2,000/month) | $240,000 |
| Minus: Vacancy (5% typical) | -$12,000 |
| Effective Rental Income | $228,000 |
| Property Taxes | -$18,000 |
| Insurance | -$6,000 |
| Maintenance & Repairs | -$15,000 |
| Property Management (5%) | -$11,400 |
| Utilities (owner-paid) | -$8,000 |
| Net Operating Income (NOI) | $169,600 |
Calculation:$228,000 income – $58,400 expenses =$169,600 NOI
Step 2: Find the Market Cap Rate
Research similar buildings that sold recently:
| Comparable Sale | Sale Price | NOI | Cap Rate |
|---|---|---|---|
| Building A | $2,000,000 | $150,000 | 7.5% |
| Building B | $2,200,000 | $165,000 | 7.5% |
| Building C | $1,900,000 | $145,000 | 7.6% |
| Market Cap Rate | – | – | 7.5% |
Finding:Similar buildings in your area sell at7.5% cap rate
Step 3: Calculate Property Value
Divide NOI by cap rate to find value:
| Component | Value |
|---|---|
| Net Operating Income | $169,600 |
| Market Cap Rate | 7.5% |
| Property Value | $169,600 ÷ 0.075 =$2,261,333 |
Final Answer:This building is worth approximately$2,260,000
How to Use This Valuation
At $169,600 annual profit and 7.5% market cap rate, this building is worth $2.26 million. If someone offers it for $2.5 million, you’d only earn a 6.8% return, which is below market. If they’ll sell for $2 million, you’d earn 8.5%, which is a good deal. The cap rate is like a reverse price-to-earnings ratio for real estate.
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