Appraisal Matters

So often when we appraise properties where the business is tightly held with the real estate, it is very difficult to separate the business from the real estate. This is most common in restaurants, bars, marinas and hospitality properties. When a business is dependent on its real estate to function (an office could be anywhere in theory) and is owner occupied,the business owner does not divide the business income and expenses from the real estate.

Even if the property is owner occupied, these need to be divided. The best way is to pay yourself market rent and separate the business and the real estate into two entities. Real Estate taxes should not be on the same statement with cost of goods! This has advantages for your accountant and makes financing the property much easier.

Remember, unless specifically stated, your lender is NOT providing financing on the business and equipment. SBA loans can be an exception to this rule, but we always have to report business and real estate income separately. Talk to your accountant about how to do this. It will make tax time and financing much easier for you. It will also not be a shock when your appraised value (for just the real estate) is much lower than anticipated. I’ve seen liquor stores doing millions in sales, where the real estate was worth almost nothing.

Eileen