Image Caption: Understanding how to calculate price per acre is crucial for maximizing your commercial property investment.
The size of your commercial property is a vital statistic. From a valuation and pricing perspective, this knowledge allows you to make the most out of your investment. However, rather than having a simple overall cost of the parcel of land, it is often the better route to gain a price per acre metric.
At first glance: The simple equation
At first glance, calculating the price per acre (PPA) may seem relatively simple. It is the value of your property divided by the number of acres. So, v ÷ a = PPA. You don't have to worry about squaring the measurement, because an acre is already considered to be a squared number.
However, this assumes that you have a certain amount of information on hand in order to make these calculations. As with many aspects of commercial real estate, what can initially seem simple actually has several more steps involved in order to reach the correct and most useful outcome.
Confirm the Size: Accuracy is key
This might seem like a simple matter, but there are elements that can complicate how large your property is, and therefore how to calculate price per acre. It is not unusual for landowners, particularly if it's been passed down over generations, to be under the impression that they own a certain size of land, only to find out later that the boundaries are not where they believed them to be. It is therefore important to do some research with the county land records office to confirm the property lines. You should then work with a surveyor to accurately measure the full extent of the land.
Review the Value: Appraise for accuracy
Next, you need to establish the value of your property. Remember that the price you purchased the land for initially may not accurately reflect its current value, even if you've only had it for a few months. You may have made some improvements to the land itself, added new buildings, or upgraded the infrastructure. Before offering the property for sale or lease, or working with a property management company, you need to solicit the help of an appraiser.
Think of this as a collaboration between you and the appraiser to get the most out of the relationship. Discuss in detail what you need the valuation for and why. This can help the appraiser determine the type of assessment that must be undertaken and the report that needs to be provided. The type of valuation that is relevant to calculate price per acre will usually depend on your intentions for the land.
Consider the Future: Plan ahead
It's also important to review how the near future of your property is likely to factor into your price per acre calculation. Consider elements such as new shopping malls being built nearby or plans to construct a new highway in the next few years. These factors can cause the value of your property to rise.
Ethically speaking, it's wise to look into the potential for depreciation and apply this to your costing. Taking these depreciations into account in your calculations can put you in a stronger negotiating position and help retain tenants in the long run if business drops off slightly and they can no longer afford your higher rate of per acre rent.
Conversion Consideration: Breaking it down
Now that you have the size and an accurate valuation of your property, all that's left is the calculation. However, it may be the case that until now you've only had access to measurements of your property in feet. To calculate the area of the land, for squares, parallelograms, or rectangles, multiply the base (b) by the width (W) to get the area in square feet. For triangles, the formula is b x h / 2.
You can then take this square foot area and divide it by 43,560 to get the total acreage. For example, a property that is 80,000 square feet in size would be 1.84 acres. As previously discussed, you simply divide your valuation by the number of acres to reach your price per acre calculation.
Wrapping Up: Thoroughness is key
Knowing how to calculate the price per acre of a property can seem deceptively simple. However, it involves establishing the true size of the property, working with an expert appraiser to consider all relevant factors, and applying the appropriate conversion. This process ensures that you get the most out of your investment and make informed decisions regarding pricing and valuation.
Understanding the complexities involved in calculating price per acre is crucial for maintaining an organized and valuable commercial property investment portfolio. By following these steps, you can confidently maximize your investment and set yourself on the road to success.
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