How I Determine My Offer Price

People ask me this all the time. “How did you come up with that number?” Fair question. Here’s the honest answer: it’s math. Not gut feel, not some formula I saw on YouTube, not whatever some broker thinks the market will bear. It’s actual math based on what the property is doing today.

Step one: What’s it earning?

If the building is leased, I start with the income. Actual rents being collected. Not what the tenant “should” be paying or what the broker’s pro forma says. I want to see the rent roll and the bank statements. Or at least the last 12 months of income and expense.

I calculate net operating income by taking gross rent and subtracting real expenses. Property taxes, insurance, maintenance, management (even if you’re self-managing, I factor in what a manager would cost), and reserves for capital items. That gives me NOI.

Step two: Apply a cap rate

NOI divided by cap rate equals value. The cap rate depends on the asset type, location, tenant quality, building condition, and lease terms. A fully leased flex building in Charlotte with strong tenants on 3-5 year NNN leases? Maybe a 7 cap. A partially vacant industrial building in a secondary market with deferred maintenance? More like an 8.5 or 9 cap.

I don’t pick cap rates out of thin air. I look at what similar buildings have actually sold for recently. Comparable sales tell me where the market is. I adjust up or down based on the specific property’s characteristics.

Step three: Subtract the problems

This is where a lot of sellers get frustrated. But it’s the most important step. If the roof needs replacing, I’m deducting $8-12/SF. If the parking lot is cracked, that’s another $4-6/SF. If there’s vacant space, I’m deducting the cost to get it leased: TI, commissions, and carrying costs during the vacancy.

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These aren’t negotiation tactics. They’re actual costs I’m going to spend after I close. Between 20 commercial deals and over a hundred residential properties, I know exactly what a roof costs, what paving costs, what tenant improvements cost in this market. There’s no guesswork.

Step four: Sanity check

I compare my number against replacement cost. What would it cost to build this building new today? In the Carolinas, new construction runs $130-150/SF for industrial and flex. Older buildings in decent shape typically trade at 60-80% of that. If my math puts the value below that range, the deal probably doesn’t make sense for me. If it’s above that range, the seller’s expectations might be too high.

I also look at price per square foot relative to recent sales. If similar buildings in the area have been selling at $100-120/SF and my number comes in at $85, I need to understand why. Usually it’s the capital items or a lease situation that justifies the discount.

The result

My offer is a number I’ve worked through carefully. It’s fair. It’s based on real data. And it’s a number I won’t try to change after you accept it. No re-trading. What I offer is what I close at.

Want to know what I’d pay for your property? Whether it’s a storage facility or a flex park or anything in between, I’ll run the numbers and give you a straight answer. 704-600-3839.