- 1). Estimate the potential gross income you will receive from your commercial property. If you have not yet leased out the property, you can estimate income by gathering data about the market in your local area. You will need to compare similar properties. For example, if you intend to lease out grade A office space, you will need data regarding rents for grade A offices in your area. You format your data in terms of dollar per square foot. Multiply this figure by the square footage of your property to obtain a figure for potential gross income.
- 2). Gather information regarding vacancy rates in your local area. Commercial property is rarely fully leased, as there is often one business in the process of moving out and another in the process of moving in. Use the vacancy rate to adjust your potential gross income to the estimated effective gross income. For example, if vacancy rates are at 5 percent, and your potential gross income is $1 million a year, your estimated effective gross income would be $950,000 a year.
- 3). Gather information regarding your properties expenses. This includes operating expenses, which are more or less directly proportional to the percentage of the property leased out. The exact percentage will depend on the type of building leased out, and thus the services of a building surveyor is required for this step. Retail premises, for example, will have higher costs than offices will. Some premises use fluorescent lighting, which is cheaper than conventional lighting. Industrial facilities consume larger amounts of electricity than many other types of buildings. Add other expenses, including mortgage payments, interest payments, improvement costs, renovation costs and closing costs to obtain an estimate for total expenses each year.
- 4). Estimate the annual depreciation for your property each year. All properties have a finite life, and the loss of its useful life will add on to your expenses. To obtain the annual amount of depreciation, subtract the land value from the building's value and divide by 39. According to the IRS, 39 is used as a rule of thumb for commercial property depreciation. Add this figure to your total expenses to obtain a figure for estimated gross expenses.
- 5). Subtract you gross expenses from your estimated effective gross income. This will give you a figure for your estimated net income.
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