Commercial real estate is one of the most attractive investment sectors. It has immense potential and can provide you with attractive remunerations. The returns you get from a commercial project depends on its quality and value. That is why you must properly evaluate a commercial plot before your purchase. There are a variety of factors to consider before moving ahead with the purchase.
Gurgaon is a fast-growing financial hub in North India. It is a prosperous industrial and financial structure and holds great potential for exponential growth. Buying commercial property in Gurgaon can be a very attractive idea. You are sure to get a substantial income if you purchase good-quality commercial real estate. Here is a list of golden rules you must follow to properly evaluate the value of commercial real estate in and around Gurgaon.
Estimate the Gross Scheduled Income (GSI)
Calculate the total income that you can receive from the space over an entire financial year. Apartment buildings, shopping malls and segmented office space can be evaluated using this process. Do not forget to modify the rent expectations for each segment so that it matches its particular market value. This will give you the expect GSI for your prospective commercial real estate.
Subtract 5% from the GSI
You must keep in mind that some of your units will remain vacant for some time during the year. To ensure that is accurately represented in your calculations, you should subtract 5% from the total Gross Scheduled Income (GSI) that you have calculated. This shall provide you with the Effective Gross Income (EGI) that you can expect from your commercial project in Gurgaon. This is the percentage most financial lenders consider while they review your loan proposal.
Calculate Your Net Operating Income (NOI)
This aspect will help you to decide whether your real estate property will be profitable or not. Subtract your year’s net operating costs from your EGI. The remainder will serve as the Net Operating Income (NOI). If your NOI is positive, then you will make an initial profit. This is the total potential amount you will earn before interest, taxes, depreciation, and amortisation.
Calculate Your Property’s Capitalisation Rate
If you divide the NOI by the price of the property, then you shall get the capitalisation rate for your property. This percentage varies depending on the area and the real estate that is offered. Different commercial projects in Gurgaon have different capitalisation rates. The capitalisation rate predicts your potential profit margins from the property.
Determine Property Selling Price
It is very important to properly determine the selling price of your property. You must come up with a sales price that suits the market. If you divide the NOI by the capitalisation rate, you shall find a very good approximation of the selling price of your commercial property in Gurgaon.
After you have figured out the selling price, you can also calculate the Gross Rental Multiplier (GRM). You can then use this GRM to find out the proper estimation of your property value.