Buying business / Property
Discussion
I vaguely remember a rough factor guide when valuing a business or commercial property.
What is the factor of annual rental to purchase price of industrial property. 15 X annual rental figure rings a bell
Also when valuing a business, is there a factor V turnover or profit. 9 X annual profit rings a bell.
How do these numbers sound.
Thanks
Graham
What is the factor of annual rental to purchase price of industrial property. 15 X annual rental figure rings a bell
Also when valuing a business, is there a factor V turnover or profit. 9 X annual profit rings a bell.
How do these numbers sound.
Thanks
Graham
I've never looked on property values as being based on the activiy being carried out within the walls - unless the building is a purpose built edifice purely suitable for the business activity that is being carried out (such as a flour mill, or an oil refinery).
Most property values are based on the state and location of the property and prevailing market forces.
Most property values are based on the state and location of the property and prevailing market forces.
Nothing is fixed when it comes to valuations of property. Any formulae that exist are purely guidelines. Surveyors are the people to talk to when trying to esablish a property valuation.
Valuing a business is equally difficult. Again there are techniques used to provide very basic guideline prices but they are just that, guidelines. Also, when buying a "business" you need to understand exactly what you are buying before working out any values:
are you buying the business:
i) with all the fixed assets (including the land and buildings)?
ii) with plant and machinery only?
iii) just the trading operation only?
Valuing a business is equally difficult. Again there are techniques used to provide very basic guideline prices but they are just that, guidelines. Also, when buying a "business" you need to understand exactly what you are buying before working out any values:
are you buying the business:
i) with all the fixed assets (including the land and buildings)?
ii) with plant and machinery only?
iii) just the trading operation only?
Both properties and businesses have one thing in common - they're worth what anyone's prepared to pay for them. It comes down to (1) return on investment (2) bidder competition and (3) degree of risk.
If you want some really "down & dirty" numbers, when buying a commercial property I aim for an 8% return (for example a £200k property to deliver £16k rent). When buying a company I'd aim for, say, five times EBIT (20% return).
Needless-to-say, if I'm selling a company or building I'd be aiming for higher and if I'm buying I'd be aiming for lower!
If you want some really "down & dirty" numbers, when buying a commercial property I aim for an 8% return (for example a £200k property to deliver £16k rent). When buying a company I'd aim for, say, five times EBIT (20% return).
Needless-to-say, if I'm selling a company or building I'd be aiming for higher and if I'm buying I'd be aiming for lower!
srebbe64 said:
If you want some really "down & dirty" numbers, when buying a commercial property I aim for an 8% return (for example a £200k property to deliver £16k rent).
The return you get reflects risk and takes into account the nature of the property and it's use, the location and the covenant i.e the financial strength of the tenant. You'd expect a higher return from a falling down shack in the middle of nowhere let to a one man band who started in business last month than from a shop in a busy high street let to a national multiple retailer.
8% is a good return at the moment if you can get it; everyone and his donkey is trying to get into commercial property at the moment so prices are rising and yields are falling as a result. I'm certainly not seeing much across my desk at the moment at that sort of level, otherwise I'd be off down to the bank to borrow money myself!
Yields on commercial property at the moment vary between 4-8% depending on size, location and covenant strength. I even saw one go last year at 1% yield but there must have been some long term alternative strategy on that.
To get a proper valuation you need an agent to look into it and even with that backing it is an art rather than a science.
Relevant factors are (1) who is the tenant and how likely are they to go bust (2) how long is the lease, ideal now is about 10 years to run with two rent reviews to come (3) what is the physical condition of the property and will it need a lot of work to relet it (4) if the lease is near expiry is the tenant likely to stay on (5) if you had to relet it what is the demand for that type of property in that area in that layout
A client of mine just bought a property at 7.5%. It is a rather crappy building, multi-let to a variety of fragile tenants and some of the leases are very short BUT it is right alongside a major development and in five years time when the development is finished the clients reckon rents will have doubled.
Who knows if they are going to be right but that's why it's a business and not a licence to print money
To get a proper valuation you need an agent to look into it and even with that backing it is an art rather than a science.
Relevant factors are (1) who is the tenant and how likely are they to go bust (2) how long is the lease, ideal now is about 10 years to run with two rent reviews to come (3) what is the physical condition of the property and will it need a lot of work to relet it (4) if the lease is near expiry is the tenant likely to stay on (5) if you had to relet it what is the demand for that type of property in that area in that layout
A client of mine just bought a property at 7.5%. It is a rather crappy building, multi-let to a variety of fragile tenants and some of the leases are very short BUT it is right alongside a major development and in five years time when the development is finished the clients reckon rents will have doubled.
Who knows if they are going to be right but that's why it's a business and not a licence to print money
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