What is GAV and NAV? A guide for commercial property investors

You’ve purchased a commercial property, or maybe you’re looking to. The asset is generating solid passive income and its new tenant will occupy the premises for years to come. You know its purchase price and the debt required to purchase it… but what is it truly worth? When valuing real estate you’ll want to know the answer to two questions: What is the GAV (Gross Asset Value)? And what is the NAV (Net Asset Value)? 

Knowing both the GAV and NAV, you can weigh the differences between multiple commercial assets. And crucially, they’ll allow you to make some very important calculations that will answer the question of whether a particular asset deserves your investment capital.

Gross Asset Value (GAV)

The Gross Asset Value represents the total value of a commercial property, without deducting any of the debt used to purchase it.

It encompasses the market value of the property itself, along with any additional assets such as fixtures, fittings and equipment. The GAV is the sum of all tangible assets of the property and will look something like this:

Gross Asset Value = Market Value of Property + Value of Fixtures, Fittings and Equipment

As we’ll see, calculating it will give you a far more handsome number than the NAV.

Net Asset Value (NAV)

The Net Asset Value, on the other hand, factors in the liabilities and debts owed against the property, subtracting these from the Gross Asset Value. It looks like this:

Net Asset Value = Gross Asset Value — Liabilities

This calculation provides investors with a clearer picture of their property’s true value, accounting for any outstanding loans and other financial obligations. The NAV essentially represents the equity value of the property, reflecting what would remain if all debts were paid off.

Using NAV to calculate return

Another term to throw in the mix is Return On Equity (ROE). This is a crucial calculation in the investment realm because it focuses specifically on the return generated relative to the equity in your property.

Once you know your equity (discovered in the above Net Asset Value calculation), you can understand your ROE:

Return on Equity = Net Income / Equity in property

You might have a lot of capital in reserve. You might also still have the opportunity to borrow for your next property purchase. So, maybe you’ll play with the equity figure in the above equation, adding or subtracting equity, to see what return you’ll be left with in either scenario. This will help you compare different investments, finance options and finance strategies.

After all, successful commercial property investing is all about how sharp your axe is before you take a swing.

Why understanding both GAV and NAV is crucial:

1. Accurate valuation

GAV offers an initial estimate of a property’s value, while NAV gives you a more accurate reflection by considering debts and liabilities. This ensures investors make informed decisions based on the property’s true financial character.

2. Calculating true return

As we’ve seen, the NAV will help you find your potential Return on Equity, a brilliant figure for comparing other assets vying for your investment capital. You might look to increase leverage if it opens up other investment doors, or reduce it depending on your financial situation.

3. Financial planning

Knowing the NAV of a property allows you to plan their finances more effectively. It provides insights into the potential return after accounting for debts, guiding decisions on financing, refinancing or divestment strategies.

4. Comparative analysis

And finally, comparing GAV and NAV across different properties can help you identify opportunities and gauge the relative performance of your investments.

While GAV provides an initial glimpse into a property’s market value, NAV offers a more comprehensive view by factoring in the asset’s debts. We’ve seen why understanding these figures are important. The more you know before you invest, the greater the likelihood of success. Prosperity stars before you invest a single dollar.

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