How has the net operating income been for the past 5 years? Is it constant, is it going up, etc?
Net operating income has been steady. Management fees typically increase 3% per year. Rental commissions have been flat for 3 years after modest decreases for the 2 years prior to that. The increase of management fees has offset increases in expense. A great little business. Very low overhead since the work is done at the offices of the association at no charge to us.
I switched from chat because I could not see your response. The determination of a capitalization rate can be very subjective but I would think 14% would be reasonable. Basically, the buyer will recover their money over seven years and given the stability of your business that is not unreasonable.. The one area of concern that might increase the rate is how much is your business dependent on one or two customers so that if those customers are lost there is a major drop in revenues. Also in determining your NOI would the employee have to replace you or if he replaces you have to replace himself. If not your NOI should really include your $13,000 in salary. If one of you have to be replaced with someone else then your NOI will need to be reduced because it is artificially high since you are underpaid for your role as CEO at $13,000.
If this answer is responsive to your question, please accept it. That is how we are compensated. It would also be appreciated if you provided feed back on your view of the answer. Finally, if the answer was especially helpful you can provide a bonus. If I can be of further assistance or you have other questions in the future you can ask for me and reach me at this site.
This communication is not intended as legal advice. A local attorney should always be consulted for legal advice. No client/attorney relationship is intended or created by this communication.
DISCLAIMER: Answers from Experts on JustAnswer are not substitutes for the advice of an attorney. JustAnswer is a public forum and questions and responses are not private or confidential or protected by the attorney-client privilege. The Expert above is not your attorney, and the response above is not legal advice. You should not read this response to propose specific action or address specific circumstances, but only to give you a sense of general principles of law that might affect the situation you describe. Application of these general principles to particular circumstances must be done by a lawyer who has spoken with you in confidence, learned all relevant information, and explored various options. Before acting on these general principles, you should hire a lawyer licensed to practice law in the jurisdiction to which your question pertains.
The responses above are from individual Experts, not JustAnswer. The site and services are provided “as is”. To view the verified credential of an Expert, click on the “Verified” symbol in the Expert’s profile. This site is not for emergency questions which should be directed immediately by telephone or in-person to qualified professionals. Please carefully read the Terms of Service (last updated February 8, 2012).