How Much Would This Land Be Worth Using the Income MEthod?

[curling]

I have a couple acres with a net lease that brings in $13,800yr. What would be a good price for it using the income approach?

 

[bran987]

curling you have to know the cap rate on comparable properties to use the income approach.

 

[slat1]

Is the $13,800 before or after taxes? What is the use? How long is the lease? Do you have a cpi escalator? Is the lease guaranteed personally?

 

[bran987]

slat, curling always quotes CFBT, lol.

 

[bran987]

btw, curling is correct to quote BTCF when talking about selling a property, as they should always be valued on a before tax basis when coming up with a sale price b/c everyone's tax rate is different. I wasn't insulting him.

 

[bigbair]

Curling, everything the guys are saying is basically correct. You need to consider what costs are incurred to the leased fee position, whether there are any escalation clauses, the term of the lease, any reversionary interests, and various other components of the ownership interest you hold. Generally speaking, the cap rate for bare land is very low, maybe 2 to 5 percent. This is because unlike buildings, there is no wasting asset portion of the investment to recapture over the holding period.

 

[vinylgroover]

what sort of land is it?.....rural, residential, industrial etc. Is the land vacant, does it have any encumberances on it etc. Does it have further development potential?......in addition to all of the things already metioned.

 

[curling]

The income is NET of taxes(property tax that is not income tax and I believe propety tax is the same for everyone unless it is a non profit organization)and insurance because in the lease it is the lessee responsibility to pay both. It is commercial to almost industrial property. It has 2 thousand sq ft shop on it also. The lease also calls for CPI increases and it is a 5 years lease with auto renewals at the end of each 5 years.

 

[bigbair]

So is the shop a leasehold improvement? If so, will this improvement and any contributory value associated with the building revert back to you at the termination of the lease? How many options for renewal at 5 year terms?

Just a few Q's.

BB