Cap rates on Commercial

[AAA]

Cap Rates Vs Yield

Hi all,
Another silly question.
Since the cap rates will be determined by the valuer based on a number of factors such as lease, quality of the tenant, location, etc, therefore it is possible for a property to have a different yield and a cap rate.

For example a CP with an asking price of $1M with a yield of 10% (rental-$100K) can have a cap rate of only 8% (which is determined by the valuer).
Therefore the idea is to target all the other factors such as lease, location, financing, etc and leave the valuation (determining the cap rates) to the lender.
Is the above correct?

Thanks

 

[Dazz]

Never in this market AAA.


If the asking price by the Vendor is 1m, you'll never get any valuer to go anywhere near that figure, let alone above it.

 

[Bird Dog]

I'm not sure I understand your question AAA but I will build on what I think Dazz is saying (from a bank valuations perspective)
EXAMPLE:
You paid $1mil ($100K rent) but you think the property is worth$ 1.25mil (based on your own assessed cap rate of 8%).
The first thing all valuers ask before they visit a property is "how much have they paid for it"..
EG: You may think that property is worth more than what you paid for it but two things will occur.
The max the bank will ever give you will be the purchase price and not a cent more. It can however be lower...
The second thing to occur is the valuer may in his own mind value it above the purchase price but will always air on the side of caution and simply quote the lower price paid. Valuers are always mindful of litigation and so will generally take the conservative figure and quote the lower price.

Not sure if this is across the board but this is what I've found in Commercial anyway.

 

[AAA]

Thanks for the reply Dazz and Bird Dog.
Thinking out loud on how to add value and improve the value of the property.
Will keep researching. Appreciate your input guys.

 

[ianp]

Take note that all property owners regardless of usage should factor $$$ to maintain their properties above what the tenant contributes.

Hi Chilliblue, Can you give me some sort of idea how much you would factor in for landlord repairs / planned maintenance on different types of property ?

 

[Aaron Sice]

Never in this market AAA.


If the asking price by the Vendor is 1m, you'll never get any valuer to go anywhere near that figure, let alone above it.

in your experience, what's the standard mark down by valuers?

10%? 20%?

cheers 8)

 

[Bird Dog]

in your experience, what's the standard mark down by valuers?

10%? 20%?

cheers 8)

Aaron,
I had a commercial lending manager (from a big 4 bank) confess to me that when you ask for a valuation, the valuer will quote you one of two valuations.
1: "Off the street here is what I think it's genuinely worth"
or
2: "Oh, it's for a bank you say? Well OK then that will be $$$$ - xx% (don't have the figure) as I need to cover my a%$ against litigation in case you fold and the bank come after me on the valuation..

cheers
B.D

 

[Dazz]

"Oh, it's for a bank you say? Well OK then that will be $$$$ - xx% (don't have the figure) as I need to cover my a%$ against litigation in case you fold and the bank come after me on the valuation..

...yep - this one is probably the closest to real life.


You know you've got yourself a screaming bargain when the purchase price agreed is lower than that silly figure presented to the Bank by the valuer.


Aaron - she can be anywhere from 5% up to over 20% nowadays. The valuations are ridickeruss. Involve a Bank and they just go even stoopidder.

 

[Aaron Sice]

*whistles*

Thats a pretty big valuation contingency to have to work through.

Opened my eyes....

 

[chilliblue]

Dazz is right and it becomes even more murkier when the valuer works for the same company who intends on selling or buying the property or simply wants are relationship with them.