Going Concern Value

[Rob Lentz]

When appraising a value in use property...Going Concern (Group Home)... ownership of the realty provides the venue/accomodations from which you operate the business. Without one, the other can't happen.

I've created an operating statement with stated and verified (external sources) income and expenses. Working my way to the NOI. Then, from that will capitalize the Going Concern, likely using the band of investments method. Then, from that will be able to separate RE value via the cost/sales approaches.

I am just wondering about one thing -
I have real estate taxes in my fixed expenses.
Should mortgage interest be part of the expenses? Or for the sake of analysis do I assume payment in cash?

Thanks,
Rob

 

[PropertyEconomics]

When appraising a value in use property...Going Concern (Group Home)... ownership of the realty provides the venue/accomodations from which you operate the business. Without one, the other can't happen.

I've created an operating statement with stated and verified (external sources) income and expenses. Working my way to the NOI. Then, from that will capitalize the Going Concern, likely using the band of investments method. Then, from that will be able to separate RE value via the cost/sales approaches.

I am just wondering about one thing -
I have real estate taxes in my fixed expenses.
Should mortgage interest be part of the expenses? Or for the sake of analysis do I assume payment in cash?

Thanks,
Rob

It appears you are mixing real estate valuation methods with business valuation methods and they may not work. To capitalize going concern income (related to business I would assume) is not appropriate in my mind. Typically businesses are valued as Gross multiplied by Factor X .... Ive not heard of capitalizing going concern income which would suggest perpetuity. I am sure you could arrive at a net going concern income and then also multiply it by a different x factor depending on how the factors of your sales were measured.
Seems to me the real estate and the going concern here are very mixed and confused.

 

[Rob Lentz]

The problem I see with group home sales is that while there is personalty, and realty, and going concern being transferred in the sale - you have to take each sale and correlate how much was given for each component. The easiest way is probably to do as I was alluding to...

cost (or sales - if you can find comparables) the realty
and the difference is going-concern and personalty.

to correlate a portion of the remainder to the personalty check with the assessor - they have personal property taxed

what's left is going-concern


--at least that's where I've come around to, anyone have any other approach/method?

 

[Hal Mann]

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[Truett Neathery]

Going Concern

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There are business appraisers who specialize in "Going Concern" appraisals. One could partner with one of those appraisers.

TN