(Investment properties for sale) Commercial Real Estate Appraisal Cost Approach
No commentsBy Pat O Connor
The cost approach was historically prepared as a part of most commercial real estate appraisals. However, the compunction to include the cost approach (when it was not relevant) has dissipated over the last 20 years.
The principle of substitution is the technical basis for employing the cost approach. According to the principal of substitution, a prudent buyer would not pay more than the cost to build a like property. In other words one would not spend $2,000,000 to purchase a new apartment complex if they could build it for 1,500,000.
The cost approach value is the sum of the market value of the land, depreciated replacement cost and entrepreneurial effort. Land is typically Valued using the sales comparison approach. The replacement cost is the cost to build a building of the same quality and functional utility as the subject property. (Reproduction cost is the cost to build an exact duplicate. This approach is used occasionally for old buildings built using materials and or types of craftsmanship not currently used.)
External obsolescence occurs when circumstances outside the subject property’s boundaries negatively impact its value. For example, an office building in New York would suffer from external obsolescence if Manhattan office occupancy fell from 93% to 75%. A mansion built next to a slaughter-house is another example of external obsolescence.
Entrepreneurial profit is the amount of compensation necessary to induce someone to organize the site, investors, debt, architecture, construction and leasing necessary to plan and build a property. The appropriate amount of entrepreneurial profit depends on factors such as competition, the difficulty of the project, market conditions and the wisdom of the developers plan. In some cases external or functional obsolescence prohibit entrepreneurial profit.
Following is a summary of the cost approach:
Market Value of Land
+ Replacement cost new of improvements
- All forms of depreciation
+ Entrepreneurial Profit
= Market Value via the Cost Approach
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Living on the Coast-Coastal Properties
By Chris J. Carpenter
Everybody loves the water. According to a study, almost two-thirds of the worlds largest cities are coastal areas while around 60% of the world population lives within 60 miles of the sea. Living beside a beach is like spending everyday of your life like a vacation since you can relax and smell the sea breeze.Before, people tend to settle along the coastal areas so they have access to water and food. Living on the coast also gives you easier access to the water for transporting purposes. This practice dates back to our ancestors who tend to settle in coastal areas which might explain why a lot of people are lured to live there.Nowadays, people also tend to dwell within the coastal area for recreational activities such as fishing, boating, and swimming, among others. Aside from that, living by the beach is the perfect place to enjoy nature.
Feast your eyes on the many creatures you can see like dolphins, rare seashells, and critters as well as jellyfishes, crabs, and even birds.Aside from that living by the beach would give you that much needed inspiration and get your artistic gears moving by writing or through photography.People tend to buy coastal properties despite the high price since it offers tranquility and gorgeous sceneries that money cannot buy. Hearing the sound of the ocean, the calming sound of the waves and the soothing ocean breeze is something everyone wants to have when things get a little rough in the city. Living on the coast will decrease stress in your life. Its like having your own live relaxation tapes wherein youll only hear waves crashing and the occasional sound of birds. These are just some of the relaxing things youll hear every day in a beach front property.
The beach is the best place to spend quality time with your family or your friends as the beach caters to young and old. Build sandcastles with your friends or party all night with friends.Aside from that oceanfront houses lures in high demand because of its location and its potential. Beach houses also attract buyers because it is also a good money making investment through rent. Some people also love living in small beach communities. Coast dwellers also like to live in an area with people of different origins.Living on the water is also for the lucky and privileged since finding a coastal property is more difficult than looking for a property on land. Coastal properties for sale are also less since homeowners tend to keep their properties longer. It is but evident that houses near the ocean are much more expensive than other properties.
Beach front lands are considered prime real estate which is obvious why many people want to acquire oceanfront properties for investment. But with limited properties up for sale, some of those potential buyers tend to look outside the country and look for coastal properties in less sought out tropical islands which are much cheaper than those properties in known coastal areas.The owner of beach real estate may have to charge tenants more in order to keep up with costs in times of flooding or erosion. However, the desirability of property such as Florida real estate or California real estate is often such that people expect to pay more for the privilege of living there. Property owners know that having a property near the beach will not only serve as a vacation home but would also rake in money because of rent.
However, there are many downsides to living beside the coast too. Storms and hurricanes can be a big bane for property owners near the ocean. Salt water also damages your house after sometime because of the effect of salinity. This means that repairs of beach houses will be more expensive even if you dont use it that much.Those who rent out their properties must also brace themselves for rate fluctuations. Owners should know that the rate of a beach house will not be as high as the summer price since there is also a high and low beach season.Beach properties can still be a good investment as long as the owners know how to balance the pros and cons.
Waterside Property Sales Pty Ltd is an Australian registered company providing a quality internet advertising medium for use by Australian Real Estate Agents to optimize the selling and renting potential of Australian waterfront, water-view and coastal real estate, coastal property and businesses.
Wednesday, September 1st, 2010 at 8:00 pm and is filed under realestate. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.
