I have the opportunity to list a gas station (my 3rd). This one is available as a lease, which is pretty easy to figure out.
However, the seller also wants to list it for sale. I can value the business based on Owner's Discretionary Income, but I'm not sure how to value the land.
It's in a small seaside town and there's only one gas station on the main street. The only other commercial comps are commercial condos that are retail spaces.
I'm hoping to avoid paying a commercial appraiser, but that could be the only option.
Any other suggestions?
Get a BPO on it from an appraiser. Should be a much cheaper price than a full appraisal.
@Joel Owens Excellent idea. Thanks for the suggestion.
Base the price on the rent he is charging you now?
@Vinod Dasani There are really two components to the price. The first is the price of the business itself.
In gas stations, the value of the business is about 3X the "owner's discretionary income".
My difficulty is valuing the property. There are no comps, unless I reach out to towns that are many miles away, and in this area, that distorts the results.
I think the real estate value is somewhere between $1.1M and $1.5M, but I really don't want to wing it. I owe my seller better care than that.
I think @Joel Owens had it right. I'm going to ask the seller to get either a BPO from a commercial appraiser, or a formal appraisal (at about $1500!)
Determine whether or not there is damaged soil due to leaking storage tanks. It could be very expensive to clean contaminated soil. This sometimes occurs at gas station sites.
@Mike Nelson Yes, of course. Here in MA, there is an annual compliance inspection, culminating in a "21E" certificate, meaning that the site is clean.
One of the nice innovations in this arena over the last decades is that there are now bacteria that "eat" petrochemical pollutants. No more big excavations for cleaning up minor spills!
How did you end up doing the valuation of real estate for the gas station? Can you please share?
@Kapil Kandel I broke the sale up into two components - business and land. The business is valued between 2X and 3 X "owner''s discretionary income".
The land will be valued by a commercial appraiser.