This is an educational blog writing. Some friends are considering buying a business in a predominantly cold weather state. They contacted me asking for guidance. Naturally, the most important thing is to verify income and value the business. Check out the following:

Direct Capitalization

Conversion of a net income to a present value dollar estimate is called capitalization.  Direct capitalization is a method used to convert an estimate of a single year’s income expectancy into an indication of value in one direct step, either by dividing the income estimate by an appropriate rate or by multiplying the income estimate by an appropriate factor.

Applicability:

Direct Capitalization analysis is generally appropriate for small to medium sized income-producing properties, in stable markets, single tenant or user-oriented properties, or those with a forecast stable income stream.

NOI / Cap Rate = Value

So you need two things: Net Operating Income and the Cap Rate. In subsequent blogs I’ll show you how to estimate NOI and reliable methods of estimating a Cap Rate. Or you can just contact Mims Real Estate Advisors and we’ll do it for you!

BBQ: “Invest in yourself. Your career is the engine of your wealth.” By Paul Clitheroe

BLT: Put Your Lights On by Carlos Santana  (w/ Everlast)