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INCOME APPROACH <br />The subject property is an owner- occupied, single - family residence which has <br />been converted and utilized as aN office building. As such, the fee simple value is <br />analyzed using market rent and expenses. <br />Market Rent Analysis <br />A survey of Santa Ana and the surrounding cities for recently executed leases <br />and asking rents for office space ranging from 500 to 10,000 square feet in size is <br />used in the analysis. The important factors considered during selection of the <br />comparables include location, building area, visibility and access. The search focused <br />on properties with arterial street visibility, but data for such properties was found to be <br />somewhat limited; however, sufficient data was available to estimate a market rental <br />rate for the subject property. <br />The survey properties indicate that rents are written on a triple -net, modified <br />gross, and full service gross basis. For valuation purposes, a triple -net basis will be <br />utilized. <br />For triple -net leases, the tenants pay operating expenses such as property <br />taxes, insurance, tenant utilities and janitorial, common area maintenance and utilities, <br />building repairs and maintenance, security, parking and sometimes management (or a <br />portion of management). These expenses are normally recouped by the landlord in <br />the form of an expense reimbursement charge. The landlord is still responsible for <br />non - reimbursed management (collecting the check and watching over the property) <br />miscellaneous expenses such as those incurred between tenancy, accounting, legal, <br />miscellaneous and replacement of short -lived items such as the roof, air - conditioning <br />units and exterior walls, if applicable. <br />Based on the review of the rental data and after consideration for differing <br />property characteristics, it is concluded that a rental rate of $1.80 per square foot per <br />month, triple -net, for the subject property is reasonable for the analysis and is used in <br />the direct capitalization analysis. <br />The estimated market income for the subject property is calculated in the <br />following table: <br />CONCLUDED MARKET RENT <br />Building Market Rent /SF Market Annual Market <br />Size Mo. Rent /Mo. Rent <br />1,214 SF $1.80 $2,185 $26,222 <br />Vacancy and Collection Loss <br />Small office buildings are most frequently purchased for owner - occupancy and <br />are analyzed using the sales comparison approach, with values calculated assuming <br />no vacancy or collection loss. However, from the perspective of an investor, a <br />75C -14 <br />