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> But you can survive a temporary market downturn by never accepting a lower rent so long as it comes back up in time. > The whole thing is silly, and the mark

by stale2002 2y ago

> But you can survive a temporary market downturn by never accepting a lower rent so long as it comes back up in time. > The whole thing is silly, and the market is rife for a saner way to valuate properties. That is not really how property valuation works. A building is not worth whatever a mathematical formula outputs. Instead a building, or anything at all, is worth exactly how much other people are willing to pay for it. No more, no less. Presumably, any prospective buyer who isn't stupid would be very much aware of the concept of a cyclical market, and they wouldn't change how much they valued a building just because the owner stupidly didn't rent it out during a downturn. > Then, when a new actual rent is established and is being paid, you use that figure. Nothing is stopping someone from simply doing that, and offering to buy the property for whatever this "better" formula outputs. And if this new formula is actually correct, then presumably such a person would be able to make tons of money from doing that.

deleted 2y ago
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CydeWeys 2y ago
> Instead a building, or anything at all, is worth exactly how much other people are willing to pay for it. No more, no less. The point you're missing is that buildings need valuations much more frequently than they are sold. CRE is generally mortgaged to the maximum extent possible (to use maximum leverage), and those mortgages need frequent re-upping as the commercial real estate market does not work like residential where you can get a 30-year fixed. So the property needs to be constantly valuated so that the banks know how much equity the owners have in the building (and if the loans are underwater), and this is being done constantly, way more frequently than the individual building is actually sold. The most common way to do this is to look at the price the building was last sold for, see how rents have changed since then, and use that as a modifier on the last sold price. (Or just a flat multiplier on top of total rents.)

deleted 2y ago

[deleted]

CydeWeys 2y ago

> Instead a building, or anything at all, is worth exactly how much other people are willing to pay for it. No more, no less. The point you're missing is that buildings need valuations much more frequently than they are sold. CRE is generally mortgaged to the maximum extent possible (to use maximum leverage), and those mortgages need frequent re-upping as the commercial real estate market does not work like residential where you can get a 30-year fixed. So the property needs to be constantly valuated so that the banks know how much equity the owners have in the building (and if the loans are underwater), and this is being done constantly, way more frequently than the individual building is actually sold. The most common way to do this is to look at the price the building was last sold for, see how rents have changed since then, and use that as a modifier on the last sold price. (Or just a flat multiplier on top of total rents.)