All Forum Posts by: Emeo C.

Hi Joel,

Thank you for trying to evaluating my idea. I really appreciate your insight. I am still sipping it.

I also have thought of owner financing and looked a little bit into it. At a quick look, it seems like a "sticky relationship" with the buyer for many years to come, but it does offer flexibility in financing options.

I will look into it some more and see if I can work out some "less sticky" scenarios with buyer.

Jon, the income that we made in Puerto Rico is not subjected to Federal tax but we have to pay Social Security tax. The local tax is about 10%.

So it's enticing for the new buyers if they don't need to pay that 10% income tax. And the weather here is much balmier than the mainland in the winter which makes it one of ideal places to retire.

My idea is also try to show the new buyers that with 150K net income minus about 80K payment in loan, for 70K, they can still hire a couple of full-time or several part-timers to help manage and attend the place. So the buyers may be able to end up with 30K profit without having to attend much to the business. If the down payment is 300K or less, it's easily a 10% cash return without doing much. 10% return in investment these days is pretty nice. Plus most of the expenses are already paid... not bad of a deal at all, at least to me.

But I am not the buyer, so ... ; )

Yes, I am trying to get a more "realistic" asking price. And sure I got one. ; (

I am not asking for a loan and I am not in distressed. Jon - you are pretty good in guessing the year. We bought it in Jan 2003. Not so much in the bubble.

My partner & I are at a small crossroad. If we are able to sell at a decent profit, great. If not, we are planning to hire more help to make it a more "hands-off" business.

The appraisal price will only leave me a profit of 2.5 years of my real taxable profit (NOI - mortgage).

Part of the reason we are thinking of selling because the local government is running a tax incentive that we don't have to pay capital gain until Jun 2012. And the new buyer has 10 years local tax exemption if the deal is closed before Jun 2012.

Jeff, I know that this is only an appraisal but these days it's hard for someone to buy something which costs more than appraisal price.

Hi Jon,

Thank you for your input.

I understand the appraiser's intention is to derive a fair approach. And that's kind of why I wanted an appraisal to get an idea.

Okay please hear me out - my arguments are:

1) Small guest house or bed & breakfast are very small business just like small restaurants with 10 tables that owners often manage it themselves. It's a very "hands-on" type of business. The new buyers will have to decide for themselves that they either need to manage it or to hire help.

And if I were to agree with the appraiser, does it sound strange to list an ad like "...This is the price $$$ for this property. And on top of it, you will get a $30K yearly salary if you manage it yourself" ... Not sure.

Also I wonder if owner's salary would be part of owner's draw, which is normally not part of NOI (at least from what I read online).

Well I am going to look into some restaurant appraisals to get some reference.

And again thank you for your reply. : )

Hi all,

Happy holidays! : ) So glad to find a forum that is so lively and full of friendly members. I need some help with appraisal and would like some advice.

I own a 11-room guest house with a partner. We have been operating for the last 7 years. However we are starting to get a little tired and would like to sell it if we get a decent profit.

Our NOI is about $150K a year (2008 - 2010). And our occupancy rate is about 65% for the last 5 years.

2 weeks ago we hired a lcoal bank-approved appraiser and we just got the appraisal back.

The appraised amount was not that great. But looking into some detail and we found that the appraiser had forced a $30K "management fee" into our NOI and now we only have $120K NOI.

Also the appraiser got a cap rate survey from a company in Florida. Based on that survey, the range for our industry was 9% - 17% and he decided to give us a 12%.

Here are my questions:
1) This business is small enough that we manage it ourselves. We never hired any managerial help. But we do have part-timers to cover some of the hours at front desk on weekends, and we did include it in our original "operating expense". So is it fair for him to force an expense like that?
2) I have been doing some homework myself prior hiring the appraiser. I have searched online and found HVC, BCRE and other Bed & Breakfast valuation professionals have surveyed or mentioned a much lower range of cap rate for hospitality industry around 9 - 11%. So we are a little bit puzzled.

We will meet with the appraiser next Tuesday and I am planning to bring all the research I have done to show him. I am hoping that he would adjust the appraisal.

What do you guys think? I would appreciate any opinion. Thanks. : )