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Valuation Hypothetical

WaynerAg03
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Here's a random thought and hypothetical I've been pondering. Say there's a house / property that is owned by an LLC. Let's say it has a value and could sale for $1,000,000. For discussion, If one was to purchase half of the shares of the LLC, what would the valuation be of that 50% be?

Easy, just half of the million? Or since it is basically an undivided interest, would it be less than that? Typically, it seems undivided interests are worth less than that percentage of the whole since the pool of potential buyers is smaller?

Thoughts?
WaynerAg03
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Follow up... if the person buying half of the shares of the LLC wanted to finance part of that purchase, what would be the best options? I assume a typical mortgage would not be available? Just a normal loan from a bank? Home equity loan from an existing house? Something else?
1939
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AG
It would really just depend on the motivations of the buyer and seller and relationship between the owners, and the way the house is being used. But yes, undivided interest is usually worth less than the actual ownership percentage due to the lack of control of the property.

Also, the discount of value is going to be greater for the majority owner. For example, if you own 75% of an undivided interest your value would be less on a dollar per dollar basis as the 25% owner because even though you own 75% of the property the other party still has access to 100% of the property and can veto decisions.
WaynerAg03
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Makes sense. Thanks for the reply. Would still be interested in other's thoughts on the topic if anybody else wants to chime in.
HTownAg98
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I concur with 1939.
gig em 02
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Is the property valued at $1MM or the LLC?
Are you buying a 50% interest in the property or a 50% interest in the LLC?
Is it common to consider it an undivided interest if you are buying into the LLC?
If you are buying into the LLC then it seems like there is a lot more to consider than just the value of the property.
WaynerAg03
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gig em 02 said:

Is the property valued at $1MM or the LLC?
Are you buying a 50% interest in the property or a 50% interest in the LLC?
Is it common to consider it an undivided interest if you are buying into the LLC?
If you are buying into the LLC then it seems like there is a lot more to consider than just the value of the property.


Great questions.

Let's say the property is $1MM. Would the LLC be different?
Is there a difference here? Let's say 50% of the LLC.
Not sure, undivided interest seemed to be comparable. Maybe not?
Would you be willing to elaborate of some of the other things to consider?
gig em 02
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WaynerAg03 said:

gig em 02 said:

Is the property valued at $1MM or the LLC?
Are you buying a 50% interest in the property or a 50% interest in the LLC?
Is it common to consider it an undivided interest if you are buying into the LLC?
If you are buying into the LLC then it seems like there is a lot more to consider than just the value of the property.


Great questions.

Let's say the property is $1MM. Would the LLC be different?
Is there a difference here? Let's say 50% of the LLC.
Not sure, undivided interest seemed to be comparable. Maybe not?
Would you be willing to elaborate of some of the other things to consider?

If the property is valued at $1MM but there is a $900,000 mortgage on it, the LLC would probably be valued at much less than $1MM. If the property is throwing off $80,000 (8%) in cash flow each year, then the LLC would be valued at more than $1MM.

If Wayner LLC owns an undivided 100% of a property and you buy 50% of Wayner LLC, then you don't own an interest in the property, you own an interest in the business - Wayner LLC still owns a 100% undivided interest. More importantly, how is power allocated in the company agreement? What if the property is fully depreciated?

Lets say its a 50% undivided interest in the actual property, and the property is worth $1MM. If I own one half and you own the other and you know I am just going to try and screw you, wouldn't you pay more so that I don't sell my half to the lowest bidder, making my interest more valuable than the market value.

Just spit balling here.
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