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Entrpreneruial Profit

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Bill_FL

Senior Member
Joined
Aug 23, 2002
Professional Status
Certified General Appraiser
State
Florida
Does anyone know of any published studies of typical entrpreneurial profit for different property types?
 

Fred

Elite Member
Joined
Jan 15, 2002
Professional Status
Retired Appraiser
State
Virgin Islands
No. I have used about four different published surveys. I wish I could afford to keep them all because each survey seems to include at least one thing very useful that the others don't have, but I have not seen Ent profit.

Along those lines. there was something a while back (in Korpacz I think) where the survey was new commercial construction cost versus appraised value upon completion. The survey said appraised value averaged 75% of cost new. So, except for under-the-table hanky-panky or non-payment of construction debt, I would say the average entrepeurial profit on those deals clearly ended up negative.

Can you use yield rates for developer's which ARE surveyed? Shouldn' t that be theoretically and practically similar to entrenpenurial profit under some circumstances?

Just as a crude example - Dveloper plans to spend six months putting up condo units and expects to sell them off in another six months. Say, $1 million is supposed to go in and $1.2 mil is supposed to come out. Isn't that close to a 20% IRR and a 20% entrepeneurial profit or at least a baseline for figuring it?
 

Patrick Egger

Sophomore Member
Joined
May 29, 2003
Professional Status
Certified General Appraiser
State
Nevada
Bill,

some of the trade associations published studies that regionalized costs and profit ranges ... the NHBA did that for the builders ... you migh check their site and also ICSC, NAIOP, etc ...
 

Jim Bearden

Member
Joined
Feb 24, 2003
Professional Status
Certified General Appraiser
State
Colorado
This subject is very simple. If you can sell it for more than it costs to build you have profit, if not you don't. The argumeunt that you have to add profit to your cost approach at all is silly. The proof is as follows:

15000SF @ $30/SF= $450000
Lot Improvements = $ 45000
Total Cost $495000
Age Life Dep @20%=$(90000)
Depr cost $396000
Add land value $100000
Total $496000
Add Profit @ $20% =$ ?

The ? is there because what is it the basis of this number. Is it based on just the replacement cost does it include the lot improvements , the land or is it based on the depreciated value. Almost every commercial appraisal I've ever done on existing properties had I included profit that same amount would need to be deducted because in the example above my value would be in the 495000 range so what do I call the elimination of the profit figure it can't be age life or functional does that make it external if so why. Further why add an imaginary number into a formula if all your going to do is take it out. You must always remember that how many times can the profit be accounted for in one buiding. Once its taken you can only gain from appreciation.
 
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