How do you value the business separately from the property

Some businesses include property. I've read about CAP rates for valuing commercial property. How do you value the business part? or value a business without property included?
In General Area - Asked by Bob C. - Oct 19, 2008
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Answer(s)

Ted X.
West Roxbury, MA

Using the CAP rate ties just about all of the value derives to the fact that it is Commercial Property (compared to a vacant structure or different use). By definition,
CAP = Income/Asset Price
Asset Price = Income/CAP
Commercial properties with higher or increasing Income will have higher value, with CAP rate held constant.
Without commercial income, you'd just be speculating on the building is worth.
Wikipedia says, Highest and Best Use concept states that the value of a property is directly related to the use of that property; the highest and best use is the reasonably probable use that produces the highest property value
Hope that helps..

Oct 20, 2008
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Bob C.
Owner/Investor
Rochester, MN

(not an answer but a response to Tex).
I figured the CAP rate for the property was based on the lease/rent you get from the business. The business income would be separate.
See what I'm (trying) to say? Split the building/business package into building/rent and business/income. Value the building based on CAP rate from rent $. How to value the business separately?

Oct 20, 2008
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KOLEC NICK N.
Broker/Agent
Fort Lauderdale, FL

Kolec Nick Ndoja
www.investprousa.com
www.mortgagemkn.com
Business is quite complicated, but separation of business and property starts with the RENT. Rent has to give proper return to Landlord (CAP RATE) and Rent has to be affordable for a tenant and long term options. When you evaluate a business, specialty of the business, goodwill and operator experience are very delicate subjects (i.e not every business has the same market demand, not every operator brings the same results, and costumers loyalty could easy change etc). Exit strategy is always something to consider. As a rule of thumb CAP RATE OR % RETURN ON INVESTMENT VARIES: 1.REAL ESTATE 6%-10%; BUSSINESS OPPORTUNITY 25%-40%.
Some times a % of yearly business sales are added to the base rent.
Bottom line: Everything is done in case by case basis.

Oct 21, 2008
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KOLEC NICK N.
Broker/Agent
Fort Lauderdale, FL

Kolec Nick Ndoja
www.investprousa.com
www.mortgagemkn.com
Business is quite complicated, but separation of business and property starts with the RENT. Rent has to give proper return to Landlord (CAP RATE) and Rent has to be affordable for a tenant and long term options. When you evaluate a business, specialty of the business, goodwill and operator experience are very delicate subjects (i.e not every business has the same market demand, not every operator brings the same results, and costumers loyalty could easy change etc). Exit strategy is always something to consider. As a rule of thumb CAP RATE OR % RETURN ON INVESTMENT VARIES: 1.REAL ESTATE 6%-10%; BUSSINESS OPPORTUNITY 25%-40%.
Some times a % of yearly business sales are added to the base rent.
Bottom line: Everything is done in case by case basis.

Oct 21, 2008
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Chris S.
Broker/Agent
Coeur D'alene, ID

Do you want the down and dirty answer?
mom and pop business values at 2-3 times net net net income.
real estate valued via cost approach, sales comparison approach, and income approach.

Jan 16, 2009
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