How To Know The Right Price
I am new to nnn and was trying to make a nnn deal through a broker for a building with a well known tenant in place (cap of 7% and term of 20 years). while enquiring the details I happened to talk to the original owner of the building who now wants to sell me the building outright (lease with the tenant in place remaining for 7 more years). Shoud I consider? How can I tell the asking price is a fair price looking at the rent rolls?? Please help!!
I always use the 1% rule. If the building generates $4,000 a month, a fair price would be $400,000. If it brings in $10,000/mo, it would be 1,000,000. You need to assess the building and adjust accordingly, however. If it is brand new and will not need repairs for a long time to come, the value goes up. Conversely, if it is a wreck and requires high maintenance, the price goes down. The 1% rule is a good place to start when deciding on a fair sales price.