How is the sale value of a business that owns several residential properties determined ?
Assuming the properties are the only assets, ie there are no other income producing activities, just the rental income.
Is it valued as in commercial property, based on a multiple of rental income.
or is it valued on the value of the properties, less mortgages (assuming these stay in place).
And where does the shareholders current account come in ?
And what about tax losses carried forward (not an LTC or LAQC)
On an asset & liability basis, to me it would be
Assets:
Liabilities:
Couple of issues I see with the asset/ liability approach:
(1) On the face of it the buyer is paying more than the property value (by the additional tax losses)
To recoup those they most likely need to be carrying on some other profitable activity (flipping, consulting, product sales of some sort)
(2) If the shareholders current account has grown large (due to supporting the business for some time), the combo of it plus the mortgages may exceed the sum of property value plus 28% of tax loss, so there's no equity in the business to sell.
lets put some hypothetical numbers to illustrate:
property value 1.5m
tax losses 0.5m
mortgages 1m
shareholders current acct 0.5m
is that business saleable at
a) .5m (1.5+.5 -1-.5) - mortgages stay in place
b) or 28%x .5m,
c) or 2m (1.5+.5 property value plus gross tax loss) mortgages and shareholders accounts paid off from proceeds as per normal residential transaction.
d) or 1.64m (1.5 + .5x28% property value plus net loss value)
Assuming the properties are the only assets, ie there are no other income producing activities, just the rental income.
Is it valued as in commercial property, based on a multiple of rental income.
or is it valued on the value of the properties, less mortgages (assuming these stay in place).
And where does the shareholders current account come in ?
And what about tax losses carried forward (not an LTC or LAQC)
On an asset & liability basis, to me it would be
Assets:
- Property value
- Tax Losses (x 28%- being the net cash value of the loss at business tax rate)
Liabilities:
- Mortgages
- Shareholders current account
Couple of issues I see with the asset/ liability approach:
(1) On the face of it the buyer is paying more than the property value (by the additional tax losses)
To recoup those they most likely need to be carrying on some other profitable activity (flipping, consulting, product sales of some sort)
(2) If the shareholders current account has grown large (due to supporting the business for some time), the combo of it plus the mortgages may exceed the sum of property value plus 28% of tax loss, so there's no equity in the business to sell.
lets put some hypothetical numbers to illustrate:
property value 1.5m
tax losses 0.5m
mortgages 1m
shareholders current acct 0.5m
is that business saleable at
a) .5m (1.5+.5 -1-.5) - mortgages stay in place
b) or 28%x .5m,
c) or 2m (1.5+.5 property value plus gross tax loss) mortgages and shareholders accounts paid off from proceeds as per normal residential transaction.
d) or 1.64m (1.5 + .5x28% property value plus net loss value)
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