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  1. #1
    bigred is offline Junior Member
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    Mar 2010
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    Default Thinking of purchasing an existing SS

    I'm really new here, as in I joined today. I'm hoping you experts and I do mean that, I've been reading through the threads most of the day and have really gotten some good information.

    Here's my question: There is a SS facility for sale here in central Texas. Its a very small facility less than 15 units, very small town, gross revenue of about 9K. The current owner is asking approx 50K. Based on the gross this asking price seems high to me. The question part. Is there some valuation you folks use to determine a purchase price other than the gross revenues? My thought is the asking price should typically be somewhere between 2x-3x the gross revenues.

    Any thoughts would be much appreciated.

  2. #2
    astro is offline Moderator
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    Feb 2008
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    Cashiers, NC
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    1,905

    Default

    First, bigred, welcome to SST, and right out of the box, you are going to get the opportunity to use the Power of SST.

    Their are several members that can give you an answer to your question, but, I am not one of them. I can tell you that a few years ago, it was 10 times the annual income, and that was the starting point. I would suspect that you estimate is way closer to current, and the seller may be living "back in the day", so to speak.
    Bob Taylor (Astro)
    Blue Ridge Self Storage
    Cashiers, NC

    Disclaimer: What Gina said....'cause the the cheese fell of my cracker.

  3. #3
    bigred is offline Junior Member
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    Mar 2010
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    Default

    Astro,

    Thanks so much for the reply. I was hoping to hear this. I just thought the asking price seemed high. I'm trying to determine what type of counter offer I can make to him that doesn't insult but allows me to purchase for a fair price.

  4. #4
    MisterJim444 is offline Senior Member
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    Dec 2007
    Location
    Winchester, Virginia
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    1,348

    Default Capitalization of NOI is normal valuation method

    Bigred

    Welcome to SSTalk. Traditionally our industry has sold facilities based upon the Capitalization of the Net Operating Income (NOI). You have to ask yourself what rate of return do I need/want for my investment? If you assume an all cash purchase and you wanted a 10% return for example, the NOI would have to be $5,000 to justify a $50,000 purchase price. After real estate taxes, utilities and insurance and assuming 100% paid occupancy; total expenses could only be $4,000 which I doubt very much. So if the NOI turned out to be say $3,500 and you wanted a 15% return – your offer would be $23,300. Remember to talk with the local property assessor’s office to determine what your new real estate taxes will be once you are reassessed based upon the purchase price – since I am willing to bet that it will be higher then the current assessment. One thing that you have in your favor is that there is really no market for 15 unit facilities. This owner is lucky that you are even considering making an offer. Best of luck with the negotiations and keep us posted on the outcome.

    MisterJim444
    Learning Never Ends, But Will Time?

  5. #5
    bigred is offline Junior Member
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    Mar 2010
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    Default

    Jim,

    this is really helpful. I'm a numbers guy so it helps me to see a formula to use in determining a value for the facility. I didn't include in my calculations the revised real estate taxes, I'll contact the municipality on Monday to make my inquiries.

    Thanks again, and I'll certainly keep you all posted.

  6. #6
    bigred is offline Junior Member
    Join Date
    Mar 2010
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    4

    Default

    Just wanted to give you all an update. The offer was refused, this gentleman is pretty firm on his price and I'm firmly against his price so I'll have to let this one pass and look for the next opportunity.

    Wish me luck.

 

 

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