Diesel

A friend is thinking of selling a residential home business. I was just shocked with how much she has been told it is worth; this is based on me simply looking at this very large house, by the sea!

It seems to be valued at about 150k BELOW other owner occupied, non business houses in the street. I find that a bit strange as the spend to turn this once family home into a business that complies with 'ever changing' fire regs and social service regs has been immense! New cash sucking regs almost every other 'jobsworth' week!!!!

Any ideas why it should be worth less as an audiited healthy profit making business than a 'home'?

D

imlach

...because to turn it back into a residential home presumably carries a cost too....

While it may not be £150k, the "deemed hassle factor" of converting it back to residential use will be that.

Also, presumably, "business" is not guaranteed - care homes are not hugely profitable these days, and becoming less so over time.

ProperCharlie

maybe the customers keep dying?

NotoriousREV

at the risk of sounding like a muppet, it's going to smell of wee and old people. That's going to affect prices, unfortunately. Could be a bargain for someone if they can overlook the property's history, though.

ProperCharlie

residential property isn't valued in the same way that a business is. a business is worth a factor of its historical profits, with some allowance made for realisable assets. a house is worth whatever some mug can afford to pay for it.

Pete The Biker

Sometimes the planners won't let you change the planning back to normal resi if there is a shortage of care home beds in the area.


Pete The Biker

Account deleted by request

I think she has been given wrong advise, there is no chance it would be 150k lower than a normal home. How well is the business doing, how many beds?

Pete the biker makes a good point but we are talking 150k this is a huge difference, I would suggest getting a comerical valuer out and a good residential estate agent value/surveyor, they should advise on how to get the value difference sorted.


chopper

ProperCharlie

it can be a lot lower. my mother recently bought a hotel in the highlands - it was a marginal business, but the building was a substantial 12 bedroom thing with gardens and also a cottage included, as well as some fishing rights. price? £160k. she also bought somewhere to live in herself, and found a nice little farmhouse type thing nearby. two bedrooms and a bit of garden. price? £175k.

go figure.

Diesel

Thanks guys - looks like it is very different rules to valuing a business property than the exact same building as a domestic home. I find that a bit odd as whatever the turnover, the value remains in the land and bricks & location...

I'll suggest she also gets it valued by a bog standard estate agent as if it was a family home...

D

Chrisgr31

She may want to chat to her local planning department to see if planning consent to return it to domestic use is likely to be granted.

Why is she selling it? Presumably either retirement or its not making enough money. If the latter no one will want to buy it, and there is a danger that someone buys the business, closes the home, and converts it back to resi. Alternatively they build flats on it.

Come to think about it, where is this place, might buy it myself!

Diesel

Business is sound, and by the sea, in Essex - nice!

Floyd

iTrader: (9)

Who wants to live in a house where lots of people have died

Old people tend to have the same affliction - death!

F

Diesel

Floyd! They dont die, they move on to a farm in Wales

Pete The Biker

Actually the value of a business lies in the ability to make a return ('yield') on your investment. The higher the risk of the business, the higher the yield you need to make on your investment (in order to make it attractive compared with other possible forms of investment). Yield = Profits divided by Purchase Price. So once you have decided what yield you are looking for, and you know the profit potential of the business, you know how much you can afford to pay to make your target yield.

Care Homes are valued by applying a multiplier to the Adjusted Net Profit ('ANP'). ANP is the operating profit before financial costs, depreciation, and any other costs which are specific to the current operator. ANP is usually 30% of Turnover, and the mutiplier is often 5.5 to 6.5 times that figure, depending on the quality of the home.

However if there was a higher alternative use value, then you would expect to pay more to reflect that.

Pete The Biker

imlach

...because when people have the same fears as you, it means the demand for it is lower, and the price is lower
Great for the rest of us.

eg, father in law went to look at a very cheap Volvo estate - reason it was cheap? It'd been used by the undertaker to transport dead bodies between the morgue and the funeral home.
So he bought it - CHEAP!

Death isn't exactly something to be scared of. It happens to 100% of us