Commercial Real Estate Valuation Calculator
Value commercial real estate using professional investment analysis. Calculate property worth for office, retail, and industrial buildings.
How the Commercial Real Estate Valuation Calculator works
Input rental income, operating expenses, market cap rates, and holding period. Calculate current value, project future cash flows, and analyze investment returns.
Commercial real estate investing requires professional-grade valuation. Analyze properties like institutional investors to make confident buying and selling decisions.
How it works
Tutorial
Commercial real estate valuation combines income analysis, market comparisons, and cash flow projections to determine property value. Professional analysis helps investors make confident decisions about buying, selling, or holding commercial properties.
You have two options: use the calculator above for complete investment analysis, or follow this guide to learn advanced valuation methods.
Key Valuation Concepts
| Metric | What It Means |
|---|---|
| Direct Capitalization | Today’s Value = This Year’s NOI ÷ Cap Rate |
| DCF (Discounted Cash Flow) | Value = Present value of all future cash flows + sale proceeds |
| IRR (Internal Rate of Return) | Total annual return including cash flow and appreciation |
Professional DCF Valuation
Here’s how to value a property using 10-year cash flow projections.
Step 1: Project Income Growth
Estimate rental income over holding period:
| Year | Net Operating Income | Annual Growth |
|---|---|---|
| 1 | $525,000 | – |
| 2 | $540,750 | 3.0% |
| 3 | $556,973 | 3.0% |
| 4-9 | Continue growing 3% | 3.0% |
| 10 | $685,452 | 3.0% |
Projection:Income grows from $525,000 to $685,452 over 10 years at 3% annually
Step 2: Calculate Present Value
Discount future cash flows to today’s dollars:
| Component | Value |
|---|---|
| Present value of Years 1-10 income (@ 9% discount) | $4,224,156 |
| Sale price in Year 10 (NOI ÷ 6% exit cap) | $11,424,200 |
| Present value of sale (@ 9% discount for 10 years) | $4,821,348 |
| Total Property Value | $9,045,504 |
Calculation:PV of income + PV of sale =$9,045,504
Step 3: Test Different Assumptions
See how value changes with different cap rates and discount rates:
| Exit Cap Rate | 9% Discount | 10% Discount | 11% Discount |
|---|---|---|---|
| 5.5% | $9.8M | $9.2M | $8.7M |
| 6.0% | $9.0M | $8.5M | $8.1M |
| 6.5% | $8.4M | $7.9M | $7.5M |
Final Answer:Base case value is$9.0M(range: $7.5M – $9.8M)
Understanding DCF Valuation
DCF valuation of $9.0 million represents all future cash flows discounted to today’s value. The sensitivity table shows value could range from $7.5M to $9.8M depending on assumptions. This range helps you understand risk – if you can buy for $8M, you have a margin of safety even if assumptions change.
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