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Pricing in expansion

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  • Pricing in expansion

    I recently spent some time talking to an owner about selling. He built the facility, and as it usually goes with people who put in a lot of sweat equity, he wants way too much. I only have his basic revenue numbers, but based off of them it's a dead deal, even if there is a lot of potential to increase revenue . He has a lot of land for expansion, which is a plus to any property, and that got me wondering. How much price premium have people given for the future potential of a facility? Any?

    While I have your attention, do banks loan more than the appraised value if you have a detailed and clear vision of how to increase revenue at a poorly managed facility? I've never purchased a business before.

  • #2
    Bank will not typically lend more then appraised value. Typically you only get 70-80% of value anyway. So if you are 5M... then you would get 4M,not 6M

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    • #3
      Price premium for expansion..really!?!?!? 0, zilch nadda none zero nothing. mmidgley is exactly right here. A lot of folks are trying to sell for ridiculous amounts. I can't tell you how many properties I have gone and looked at and offered what truly was a fair price and were turned away because of "future possibilities." I'm not paying a premium for something that is not there. If you want to build it and then sell it to me we can talk. Land cost is typically $2-$4.5 for land in the big picture in the typical secondary market. You could factor that in based on what size building you are looking to put in but personally I would never pay for what could be. Would you pay for a plain unfinished 5CT diamond that hasn't been worked and cleaned up. HECK NO. Like wise with real estate/storage. Pay for only what you are looking at. Buildings plus land cost. (To build new we usually allow for $25-$27 a foot) Good Luck!
      Chasing Perfection to catch Excellence

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      • #4
        Even though I was in the vehicle industry for 35 years it still amazes me what some of the same vehicles I used to own, now go for at auctions. Frame off restorations make them all shiny but a bone stock older muscle car still brings way more $ than I ever thought they would.

        When I think now what I could get for my old baseball card collection. I cry over that.

        Betting on the come for land and a storage facility seems very iffy at best. That brings an old saying to mind that is backwards, "Buy high and sell low".
        "Never let the inmates run the asylum!"

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        • #5
          Wondering what my old 1960 Chevy Biscayne would be worth now. Or my '74 Charger.

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          • #6
            Originally posted by Stevedore View Post
            Wondering what my old 1960 Chevy Biscayne would be worth now. Or my '74 Charger.
            Depends on the conditions and what packages are on them. You can google to get generic values. Depending on the 1960 Chevy engine, that could be worth something.
            "Never let the inmates run the asylum!"

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