How To Value Commercial Property

If you own commercial income property and you're thinking about selling, or you're shopping to buy, the value probably doesn't work the way you'd expect. A house gets priced off comparable sales. Commercial real estate usually gets priced off the income it produces.

It Starts With Net Operating Income

The number that matters most is Net Operating Income, or NOI. You start with the property's profit and loss statement, then normalize it. Normalizing means stripping out discretionary expenses that aren't necessary to operate the property, things like charitable contributions or personal meals run through the books.

Add Back What a Normal Owner Would Spend

You also add back costs that should be there. If the owner manages the property themselves, include a market-rate management fee. If repairs look unusually low, factor in normal reserves. The goal is to see what the property would earn under normal, market-based operation, not how one specific owner runs it.

Apply a Market Cap Rate

Once you have NOI, you apply a market cap rate. Value equals NOI divided by the cap rate. Say a property produces $50,000 a year in NOI and similar properties are trading at a 10% cap rate. Divide $50,000 by 0.10 and the indicated value is $500,000. Comparables still matter, but the income approach usually drives the number.

Where This Approach Works Best

It works especially well for apartments, mobile home parks, and self-storage, where the income is tied to the real estate itself instead of a separate business. It really comes down to three questions: how much does it make, what does it cost to operate, and what rate of return will a buyer accept?

Get those three answers right and you'll have a realistic number to buy or sell from. If you own or want to buy commercial property in the Enchanted Circle, run the income before you set a price.

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Have questions or want to learn more? Give us a call at 575-613-4243. We're happy to help.

Rob Swan | Qualifying Broker | Swan Realty Inc.

How To Make Money From Inflation Using Real Estate

Inflation hits everyone. You feel it at the grocery store, at the gas pump, and just about everywhere else you spend money. But if you own the right real estate, inflation can actually start working in your favor. Here is how that math plays out.

The Part That Hurts

The Bureau of Labor Statistics puts the average family's annual spending on consumables, things like groceries, fuel, eating out, and household supplies, at around $45,000 a year. If inflation runs 10 percent, that is about $4,500 in extra costs just to keep living the way you already do. That is the part that stings.

How Real Estate Can Turn That Around

Now say you own a $500,000 property in a sought-after area. That same 10 percent inflation just added $50,000 to your net worth. Subtract the $4,500 you lost to higher living costs and you are still ahead by $45,500. Inflation still hit you, but you came out more than $45,000 richer because of it.

Not All Real Estate Is Equal

Not every property performs the same. Desirable properties, resort areas in particular, have historically outpaced the national average in appreciation. So in a place like Red River or Angel Fire, the numbers might look even better than my example. They will always vary, and there are other dynamics at play, so treat this as the simple version.

You cannot stop inflation. What you can do is own the kind of real estate that benefits from it. That is the whole point.

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Have questions or want to learn more? Give us a call at 575-613-4243. We're happy to help.

Rob Swan | Qualifying Broker | Swan Realty Inc.

Who Needs Experts? We Have Phones. Why a Real Estate Professional May Still Come In Handy

Your phone gives you access to virtually all of the world's knowledge, and you can pull it up in about three seconds. So who needs experts anymore? Let other professions fend for themselves. Here's why a real estate expert is still very much worth having.

A Real Expert Knows a Stack of Things, Not Just One

A real estate expert is not an expert on one thing. They are experts on a whole stack of things at the same time. Valuations, zoning, vacation rental regulations, real estate law, market conditions, negotiation, lending, investment analysis. The list goes on. Each one of those has its own learning curve and its own way of going sideways if you get it wrong.

The Value Is in the Combination

Knowing each topic in isolation is not the same as pulling them together. A real expert connects valuations to market conditions, zoning to vacation rental rules, lending to investment analysis, and applies all of it to your specific situation. That combination is what walks you through a buying or selling transaction without making a costly mistake. Your phone is great for research. It is not great for spotting the one thing that could blow up the deal.

So yes, use the phone. Do your research, ask your questions, get smart on the subject. Then bring those questions to someone who lives this work every day in Red River, Angel Fire, and the rest of the Enchanted Circle. That's where a real professional earns their place.

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Have questions or want to learn more? Give us a call at 575-613-4243. We're happy to help.

Rob Swan | Qualifying Broker | Swan Realty Inc.

Seriously! Do You Want To Pay Property Taxes On A Couch?

Most homes in Red River and Angel Fire sell furnished. That's normal up here. What isn't normal is paying property tax every year on that furniture, and a lot of buyers do it without realizing they signed up for it.

Why Furniture Ends Up On Your Tax Bill

When you buy a furnished vacation home and the purchase agreement lumps the house and furniture together, the county assesses the whole package as real property. That couch, those beds, the kitchen table, all of it gets baked into the assessed value. You end up paying property tax on a couch year after year.

How To Keep Furniture Off The Assessment

The fix is simple. Separate the value of the furniture from the value of the house in the purchase agreement. Furniture is personal property, not real property, and the contract needs to reflect that. Done right, the county only assesses the real estate, and your tax bill drops to where it should be.

Why This Matters In Our Market

Most cabins and condos here change hands fully furnished, so this comes up on almost every vacation home deal in the Enchanted Circle. Twenty years of brokering in Red River and Angel Fire and I still see buyers get caught by it. A few sentences in the contract can save you real money over the years you own the place.

If you're thinking about a furnished mountain home in Red River, Angel Fire, or Eagle Nest, structure the deal the right way from the start. It's a small detail that pays off year after year and be sure to get your accountant on board before you pull the trigger. 

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Have questions or want to learn more? Give us a call at 575-613-4243. We're happy to help.

Rob Swan | Qualifying Broker | Swan Realty Inc.

 

 

What Is A Cap Rate & Where Do They Come From? How To Value Income Producing Real Estate

Thinking about buying or selling a commercial income property here in the Enchanted Circle? Before you do anything, you need to understand cap rates. That one number drives what a property sells for.

What A Cap Rate Actually Is

Cap rate is short for capitalization rate. It's the income return a property produces based on its price. The math is simple. A property that costs one million dollars and produces $100,000 a year in net operating income has a 10 percent cap rate. Price and income, that's it.

Where Cap Rates Come From

Cap rates come from the market, and they move. Apartment complexes often trade somewhere around 4.5 to 6 percent for many stabilized or value-add deals. That number shifts with interest rates, demand, property condition, location, and risk. The market sets the rate, not the seller.

Why Buyers And Sellers See It Differently

Here's where folks get tripped up. If you're selling, you want a lower cap rate, because a lower cap rate pushes the sales price up. If you're buying, you want a higher cap rate, because you're paying less for the income stream and earning a better return. Same number, two opposite goals.

Cap rates aren't complicated once you see what they measure. Whether you're buying or selling commercial real estate in Taos, Angel Fire, or Red River, knowing the rate puts you in a stronger position.

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Have questions or want to learn more? Give us a call at 575-613-4243. We're happy to help.

Rob Swan | Qualifying Broker | Swan Realty Inc.

10th Circuit Court Affirms Your Right To Fish In All New Mexico Rivers, Even If They Are On Private Land

If you spend any time in or around Red River or any other New Mexico community with a river or stream nearby, you need to hear this.

On April 21st, the Tenth Circuit Court of Appeals affirmed a New Mexico Supreme Court ruling: the public has the legal right to fish, walk, or wade in streams and rivers that flow across private land. The water is public, always has been, and the state is now actively enforcing that right.

What the Ruling Actually Means

The state Attorney General has filed lawsuits against landowners who are blocking access or harassing people trying to use waterways. One case along the Pecos River involved a landowner who allegedly made death threats and used heavy machinery to trench the riverbed and create underwater hazards. According to the AG, that person is now facing serious fines and possible incarceration.

How to Access Legally

You can be in the water and up to the high water mark. That part is settled. What matters is how you get there.

You cannot cross private land to reach the water without permission. You need to enter at a public access point, or through adjacent private land where you have the owner's permission. Once you've reached the high water mark or you're in the water, you're on public easement and you're good.

This is a big win for recreation in New Mexico, but it comes with responsibility. The land around that water belongs to someone. Respect it, and pack out what you pack in.

Have questions or want to learn more? Give us a call at 575-613-4243 — we're happy to help.

Rob Swan | Qualifying Broker | Swan Realty Inc.

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Why Local Vacation Rental Management Beats Offsite or Virtual Management Every Time

If you own a vacation rental in Red River or Angel Fire and you're relying on offsite or virtual management, this is worth reading.

A few days ago, an excavator hit a gas line at one of our managed properties. The building got red tagged. The gas company showed up. The plumber showed up. The contractor who caused the whole mess showed up. It was a situation, to say the least, and the owner lives several states away.

When Things Go Wrong, Minutes Matter

Because we manage the property locally, our staff was on-site within minutes. We coordinated with the plumber, worked with the gas company, dealt with the excavators, and got the state inspection scheduled so we could get the gas back on.

By the time we notified the owner, the entire situation was already resolved. A plan was in place. There was nothing left for them to do except know what had happened.

That's what good local property management does. The stress, the chaos, and the problems stay with us.

Managing by Phone Is a Liability

Without someone in town who can be there in minutes, you're managing emergencies by phone. You're coordinating strangers you've never met, negotiating costs you don't understand, and hoping for the best.

That's a hard way to run a Red River or Angel Fire vacation rental, and it's a liability waiting to happen.

If you don't have boots on the ground, it's probably time to consider making a change.

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How To Value A Vacation Rental As An Investment & Find The Money Most Buyers Miss

I get this question a lot. How do you actually know if a vacation rental is a good investment? There are multiple ways to run the numbers, but here's how I do it.

The Formula

Start with the purchase price — that's your investment basis. Then list every actual operating cost: property taxes, management fees, utilities, maintenance, all of it. Next, pull the actual rental income from existing records, or estimate it if records aren't available. Subtract your total annual operating costs from that income and you have your net operating income. Divide that number by the purchase price and you've got your income return as a percentage.

Most people stop right there. That's probably a mistake.

Don't Forget Appreciation

The income return is only half the picture. The other half is what the property does in value over time. I like to look at a 10-year window of comparable sales and work out a reasonable average annual appreciation rate. Add that to your income return and you've got a rough total return estimate.

So if a property produces a 5% income return and appreciates at 5% per year, you're looking at something close to 10% annually on paper.

Use It to Compare Properties

This formula works just as well as a comparison tool. Run the same numbers on two or three homes and the best investment opportunity will jump right out at you. If you're exploring vacation rentals in Red River or Angel Fire, this approach gives you a clear, apples-to-apples picture fast.

It's also worth knowing how much you can realistically make renting your house before you run the numbers — income assumptions matter a lot.

Run the formula, compare the properties, and you'll know exactly where the real money is.

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Have questions or want to learn more? Give us a call at 575-613-4243 — we're happy to help. Rob Swan | Qualifying Broker | Swan Realty Inc.