I just put a property up for sale, two fully-furnished units. I had wanted to have fewer 2-bedroom rentals right now as 1-bedrooms and studios are in greater demand.
My Realtor has now told me that a well-monied buyer has inquired about buying my whole furnished rental home business. The buyer liked the numbers on the 2 units, which pulled in 38K in gross rents last year.
I have been asked to price my business and I don’t have a clue. I know how to do comps on the real estate, and I know the value of the furnishings, but how do you price a working business? The Good Will, the name recognition, the agencies that we have been dealing with for almost 10 years? The expert manager who does all the work when I go out of town?
Good buyers with cash never grow on trees, so I’ve got to take this seriously. Little early to retire, but I’ve got lots of other stuff I want to do. I just spent some hours today checking in two tenants, we are more than 90% full, it’s a good time to market this business I guess. Then Saturdays could be all mine again.
I know I need to talk to my CPA. Do I need a business lawyer? An actuary to determine the value? Where would I find that advice? This would be easier if this were a Pizza Restaurant but it is closer to an Extended Stay Hotel. I invented my little business, there is not another in this town, just a few Mom 'N Pops with a couple of furnished units.
What sort of cash return on investment would a buyer look for? The real estate would have to be separated out and sold as it is all in our own names, not the company’s.
I am interested but out on a limb. I would be grateful if you experienced real estate investors and lawyers and CPA’s jumped in here with some advice. Help out this neophyte seller.
Furnishedowner
You are absolutely correct - valuing a business is a whole different animal than valuing a business property. You really need to bring in some professional help. You can contact one of two people, either a commercial real estate appraiser who is experienced in valuing going concerns (i.e. businesses) or you could contact a CPA who is experienced in this line of valuation. That is your best bet. It may cost you some upfront but you may be able to get your buyer to cover half the cost. Either way, you will know that you are offering a fair price and not a pie-in-the-sky number.
Business valuation is a highly specialized area. A garden-variety CPA cannot do this for you and do it right.
(Although I doubt that you would find many CPA’s that would admit this, and would take your money and give you a crappy product anyway. I’m cynical, but honest.)
You’re in Dallas. If you need help locating someone who can do this for you, give me a call. It’s too important to you to leave it to amateurs.
Thanks to the responders…and McWagner I am not in Dallas! I’m in a small New Mexico town of fewer than 50,000 people. The nearest big cities–Lubbock and Albuquerque are both 3 & 1/2 hours away.
I spent the weekend learning about EBITDA online. Also enterprise value, discretionary revenue, raw cash, etc.
Furnishedowner
Oh. Don’t know why I was thinking you are in Dallas.
Good luck and lemmeno if there’s anything I can do to help.
Wag
Thanks mcwagner and johnevanmiller for your input. I have found a person who puts market value on about 400 properties a year. I am diligently scoping out the “raw cash” value here. I am visualizing this business like a machine, you turn the handle and dollars drop out. That is after some expenses.
The Realtor just called. Buyer wants to see the inside of the first units tomorrow.
And the office…gulp. This is when I start regretting all those deferred clean-up projects. Wish me luck.
Furnishedowner