Cap rate for a bar

[Deleted member 128537]

I'm doing an appraisal of a small bar. It was purchased by another bar owner as really a write off about 1 1/2 year ago. It began to be profitable now she has an offer to purchase. The NOI is really only for one full year. Hardly gives any clear trend. The first 4 months of this year shows a pretty good NOI from previous year.

The problem with bars is developing a market cap rate since they always have cooked books, and no one divulges data. Typically when I do these things I just work off the sales and cost approaches with most weight to the sales approach. However the bank would like me to look at the NOI a bit. I thought about building an investment cap rate but really that depends upon the actual investor or the buyer.

Any suggestions what a person might do with a limited NOI.

Have any of you developed a market cap rate for bars? Or have you found it pretty much an effort in futility like I have?

 

[Dennis J. Black ASA IFAS]

Many questions

Are you appraising the real estate or the business?

If it is the real estate, the NOI of the bar is MEANINGLESS.

Also, you are a cert RESIDENTIAL, why are you involved at all?

Is there a certified general involved?

If there is, they should be guiding you.

 

[MNRural]

Isnt every residential property in Wi basically a bar?

 

[Michigan CG]

Mr. Black:

It appears he is appraising the business as the owner has an offer and the potential buyer is most likely looking at the profitability of the business.

Let's not jump on the guy because of a license.....geez...seems to be everyone's first attack.

Mr. Quenzer:

If you are looking to recreate an NOI, and you have already stated the books are cooked like most bars there is a way to do it. the books may be cooked, but they are always cooked in favor of the bar owner. The owner most likely has every reciept for every case of beer, bottle of liquor and jug of orange juice.

Assemble his reciepts and you have the cost of goods sold. A well run bar will run about 20-25% product cost, and about 20% labor cost. If you were to rent a facility for a bar your rent should be no higher than 12%, with 8-10% being ideal. Cemicals, paper supplies etc should run 3-5%.

Depending on your state there might be Dram shop insurance in addition to other insurance. Typically Dram shop insurance in Iowa is $1500-2500 per year. Call an insurance agent, get a quote. If it is a dram shop state make sure you know how many pool tables and dart boards they have, and how much food they sell in relation to alcohol.

If you have further question I would be happy to help.

 

[Lost Cause]

Mr. Black:
It appears he is appraising the business as the owner has an offer and the potential buyer is most likely looking at the profitability of the business.

Let's not jump on the guy because of a license.....geez...seems to be everyone's first attack.

Questioning whether someone is appraising beyond their license is a valid and critical issue. It should be the first question asked.

It seems to me that the key issue for the Income Approach would be what rent the place could command, not what kind of income the bar throws off.

 

[Michigan CG]

Mr. Harriman:

I don't care whether a residential guy is appraising a bar in Wisconsin....doesn't affect me here in Iowa. I just assume that posts like this the person, trainee, licensed or certified Residential is working with someone who is qualified. I guess I take a positive attitude about folks, assume the best, try not to be pesimistic.

Now if someone wants to buy a bar, the business, I don't they care about the rent the place would command. Take a bar in Kansas, where there is a dry county. You will see (or it used to be this way) a bar right on the other side of the county line. Nothing but farm land surrounding it. What will that rent for--who cares? What kind of business does the bar do? That is what I want to know if I am buying it. How does this bar compare to the bar on the opposite county line?

Seems pretty simple to me.

 

[Lost Cause]

I don't care whether a residential guy is appraising a bar in Wisconsin....doesn't affect me here in Iowa. I just assume that posts like this the person, trainee, licensed or certified Residential is working with someone who is qualified. I guess I take a positive attitude about folks, assume the best, try not to be pesimistic.

Now if someone wants to buy a bar, the business, I don't they care about the rent the place would command. Take a bar in Kansas, where there is a dry county. You will see (or it used to be this way) a bar right on the other side of the county line. Nothing but farm land surrounding it. What will that rent for--who cares? What kind of business does the bar do? That is what I want to know if I am buying it. How does this bar compare to the bar on the opposite county line?

Seems pretty simple to me.

It may not affect you in Iowa, but it will affect the poster wherever he is. You can assume anything you like. I prefer to work with facts.

If Doug's been retained to value the bar business, then he's got himself a business appraisal, not a real estate appraisal. If this is the case, licensing is not relevant. But he should take care not to report his conclusion as the market value of an interest in real estate.

 

[Michigan CG]

It may not affect you in Iowa, but it will affect the poster wherever he is. You can assume anything you like. I prefer to work with facts.
If Doug's been retained to value the bar business, then he's got himself a business appraisal, not a real estate appraisal. If this is the case, licensing is not relevant. But he should take care not to report his conclusion as the market value of an interest in real estate.

Well maybe Mr. Quenzer will share his Scope of Work, but if you were buying an operating bar would you not want to know the value of the business???

He can value both the Real Estate and the Business, whatever his client wants.

As prefering to work with facts, it is just annoying that some of us with varying licenses have to yell from the rooftops about appraising above their license. The trainee who asks a question and gets the WHERE IS YOU MENTOR, the Licensed Appraiser who gets the YOU CANT DO THAT IT IS ABOVE $250,000, and this guy who gets the:

Also, you are a cert RESIDENTIAL, why are you involved at all?

Are we afraid some guy from Wisconsin is gonna steal an commercial appraisal from us, or can we answer his question without making accusatory assumptions and statements? There are too many people with a license that does not say trainee who forget that they too used to be at a certain license level before they got their current licensure, and what road they had to take to get there.

 

[Dennis J. Black ASA IFAS]

Supervision

The whole point of my post was the poster appears to be in WAY over his head. I question competancy, supervsion and legality.

 

[PropertyEconomics]

With a residential certification .. it would be my guess there is a competency question and I would bet his local board would think so also.

Call up your local board and tell them what you are trying to appraise and ask how they view it. Surely you know someone on the appraisal board you can talk to.
In my office .. if there is any question as to competency or any sort of conflict of interest .. Our answer is always ... NO .... we recommend someone we trust to provide OUR client with reliable information.

AND just based on the statement of the problem ... it is a business valuation which may involve the real estate. If you dont separate values I think you have not completed the assignment correctly.
And this then .. would be what I would consider to be a complex assignment for a certified residential appriaser.

Not bashing the guy at all ... facts are facts and I think his certification doesnt allow him to complete this appraisal.