Things to look for when valuing investment real estate

aprilproperties-1

By Alec Pacella, CCIM
Managing Partner at NAI Daus
apacella@naidaus.com
(216) 455-0925
Twitter @dausyouknow

Double Vision
If you are a frequent reader of this column, you’ve read about various highlights of my youth. I’ve shared stories about my Aunt Norma’s unspeakable sauce (Prego), my Uncle Ralph’s cool gifts (Swiss Army knife) and the untold fortunes lost when my mom pitched my baseball card collection (welcome to the club). Another such event involves comic books, one of my favorite pastimes.

For anyone that has ever read 1970s era comics, you likely recall the pages of advertisements peddling various trinkets – sea monkeys, t-shirts and the famed x-ray glasses. This last one was just too much for me to resist – what 10-year-old could turn down the ability to see right through just about anything? So one day I collected up a hard-earned $2.00, filled out the order form and dropped it in the mail. Six weeks later, I was greeted with a package. As I tore open the box, I’ll never forget what was inside – a pair of plastic framed glasses with cardboard lenses and a small round hole in each. A feather was sandwiched between the layers of cardboard that formed each lens and partially obstructed the holes. This caused the light to slightly diffract, resulting in a shadowy image of whatever you were looking at. Creepy – yes, but certainly not x-ray vision. And thus an early lesson that things are not always what they may first appear. This month, we are going to discuss a few interesting instances of this in the context of valuing investment real estate.

Leasehold interest
A great example of things not being what they may first appear is a leasehold interest. The majority of real estate valuations involve what is commonly termed a “fee simple interest.” This means that the property includes the ownership interest in the land as well as the improvements. But there are times where these two components are owned separately.

For example, suppose that Mr. Jones owns a one-acre parcel at the corner of the proverbial Main and Main, the absolute best location in the city. Click to read entire article. 

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