How to determine value of a real estate business?

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How to determine value of a real estate business?

Tom Sylvester
Real Estate Investor · Rochester, NY · Member since 2008 · 193 posts · 46 votes

I'm a 50/50 owner in an LLC that holds a variety of real estate. We are looking to either buy our partner out or have our partner buy us out. In order to do this, we'd first like to figure out the true value of the business.

Does anyone have any useful guidance/articles/companies that can help us assess the value of the business?

Has anyone else gone through this process before?  Any tips or guidance would be greatly appreciated.

Thanks in advance!

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  • Percy N.
    Developer · Philadelphia, PA · Member since 2015 · 2k+ posts · 905 votes
    10y
    Besides the physical properties (which can be appraised), what other assets does the company own? Are there any systems, processes, leads that might have tangible value?
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  • Natalie KolodijBusiness Member
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    Tax Strategist| National Tax Educator| Accepting New Clients · Member since 2014 · 3k+ posts · 4k+ votes
    10y

    Many CPA firms can provide a full business appraisal. 

    We have licensed MAA (merger and acquisition) specialists on staff who do appraisals for exactly this purpose regularly. 

    If the LLC is literally just the real estate I would lean more toward actual property appraisals.

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  • Matt Wills
    CPA/Investor · Minneapolis, MN · Member since 2016 · 19 posts · 12 votes
    10y

    @Tom Sylvester

    It is important to remember that your LLC membership agreement may state you have to get a third party appraisal before selling/buying units of you LLC. If that is the case, then you will have to get a professional to help.

    If that is not the case, you not only will want to value the property but also the income stream as well.  That is often overlooked.  

    The easiest way i can think of would be using the same valuation method you use to determine the value of potential investment properties.  An example would be the 2% method, BP Calculators, etc.  You should already know the necessary facts so it may provide a reasonable estimate of the GROSS value. 

    You havent considered any liabilities associated with the investment yet. Remember you are potentially adding 50% more debt as well.

    Now this is just a valuation estimate on ONE property, your LLC may hold many - you may need to do multiple valuations. (A professional will do 1 valuation for the entire membership interest) You may need to also consider debt on the properties, payment terms, discounts for lack of marketability of the interest, discounts for lack of controlling interest, etc. after you value the properties themselves.

    Hope this helps.

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