Income Capitalization for an ALF?

[Ken B]

“A New I T” is a clever spelling of annuity.

A bit too clever for most of us, I suspect. :laugh:

 

[Kali the Boston Terrier]

I'm not sure why someone would ask our opinion about the income approach...and then argue with us. If you already knew everything...why ask?

 

[BRCJR]

I have recently completed an appraisal of an Assisted Living Facility (ALF) which did not include the Income Capitalization Approach. Client calls and says that they need the Income Approach in order to fund the loan. I explain that in the subject's market this building is purchased by an owner/operator to run an ALF business and not for rental income and in addition there was no available rental information for this type of building.
The client and they say they understand but need it in order to fund the loan. Any opinions or advice would be appreciated.

I am a review appraiser for a lender and would order another appraisal, from another appraiser, if I received one for the property type indicated and an income approach was not included. I truly believe, from what I read and to my understanding of what I have read, this is a case where the income approach is applicable and should be included.

This is a complex assignment, as the value of the bed license is being purchased along with the real estate and FF&E. In most cases you must show need for more licenses to be issued by the state. I see assignments where the bed license is of great value. The buyer actually plans to build a new facility and transfer the bed license after construction is complete.

I can go on and on about how complex this type of assignment may be.
I am not trying to condemn or point a finger at you or anyone else, but I think and hope you look hard at your position and viewpoint on this one.

May I ask only one question?

How many ALF appraisals have you been involved with and/or done?

 

[PropertyEconomics]

What is it with you guys and instantly questioning a persons ability to complete an appraisal? For all you know I am a Cert Res with more commercial experience than you have or maybe, just maybe, I am a Cert Gen and the forum hasn't updated my licensing info. I think that from now on so that you guys can maybe stick to helping a fellow appraiser out with your opinion instead of questioning his/her capacity or ability to appraise I will start each post by stating that I am indeed a Cert Gen and the forum hasn't updated this info yet. That way you can go straight to the topic at hand and not get sidetracked by this issue. FYI in FL a Cert Res can complete commercial assignemnts as long as they are not for federally related transactions.

Timothy,
I disagree, the income produced by the property reflects a service provided that includes among other things lodging for the elderly. Because of the service provided by the business the rental income is much greater than what it would be if you used the property as say a small apartment building. I am not appraising the business but the real estate.

Thats why you deduct expenses .... :Eyecrazy:

 

[Kali the Boston Terrier]

PE...what approach is that? Oh I fear I have been doing these all wrong.

 

[Mr Rex]

Thats why you deduct expenses .... :Eyecrazy:

If you deduct expenses, should you acknowledege income?:new_all_coholic:

 

[PropertyEconomics]

If you deduct expenses, should you acknowledege income?:new_all_coholic:

That depends on whether you have competency which by the way applies to everyone, no matter your license level. Funny how that works .. they kinda slipped that one in there didnt they Rex ....... m2:

 

[PropertyEconomics]

PE...what approach is that? Oh I fear I have been doing these all wrong.

Brian .. I know a lot of things and I certainly know youve not been doing them wrong .. but just so all are clear that would be the

INCOME APPROACH ​

That poor poor client .... man you gotta feel for them on this one.

 

[Kali the Boston Terrier]

What I have always wondered is how GRM got to be so popular in residential. There is a whole generation of appraisers that would not know how to do a correct operating income statement on a residential property.

Nevermind I know why, because all the form asks for is Gross Rent and GRM...see I asked and posted all at the same time...where's my cape!

 

[Michigan CG]

OK....The OP has asked the questions, and been given some good advice. Hopefully he looks again at his theories and educates himself in the complexity of the assignment and how it should be developed in relation to common appraisal practices. The commercial forum has been relatively civil, so it is now to a point to keep it that way.