How to Value a Buy/Hold LLC

[Michael Vogt]

Hey, BP

I am just getting started in RE investing and am starting an LLC with two other people. We are interested in using the BRRRR strategy to buy and hold rentals (looking at a few areas in PA). We have a business model and plan in place. However, one thing I have had a hard time finding information about is: How does one value the business when one partner eventually wants to leave the partnership? Is there an industry standard for valuing buy/hold rental companies? I'm thinking there are three prongs to valuing the business:

i) Equity in the property

-This seems pretty straightforward. If the business has 1M in equity and one of the three partners wants to leave, their share is 333K.

ii) Equity in the business accounts

-We plan on reinvesting all profits and maintaining a separate business account to handle all of the deposits and withdrawals. If there is 30K in here when the partner wants to leave,  their share is 10K.

iii) Value of future cash flow

-This is the prong that I am seeking advice/guidance about. Does the leaving partner have an interest in the future cash flow of the business? If so, how is that value calculated?   For example, if the company is generating 50K in revenue per year (let's say a net of 15K), how do you value this when buying out the partner that is departing?

Please let me know if you think I'm missing any other information.

I look forward to your responses and being an active member in the community!