Curious as to how a boarding house would be valued? Would it based on the asset or the income it generates? Or both?
Boarding houses are very unique, it really depends upon the structure of the rooms. If it is a reasonably standard house that has boarders it is valued at the expected realisation price as a house. If it is purpose built, then it would be considered specialised or commercial and would be valued more closely to its income earning potential. There is no defined policy that you can rely on other than to actually get it valued.
Best of luck with the project Justin
All real estate is valued based on the sale prices of comparable assets. The methodology used for a boarding house valuation may vary from property to property based on the specifics of the subject asset, however, in general, when sold as a ‘going concern’, the value would be assessed primarily via the capitalisation method. This involves calculating the net yield (annual return on income after expenses), and comparing this to the net yield of other boarding houses that have sold. The yield would vary depending on the size of the property, its condition, location, development potential and other factors. But, as an example, a purchaser may target a 7% return on their money, and would therefore pay $1.43mil for a boarding house that was returning $100,000pa after expenses.
In circumstances where the subject property has a ‘highest and best use’ that is something other than as a boarding house, an alternate methodology may be more appropriate. This could be on a ‘hypthetical development’ basis, or a ‘direct comparison’ basis, or some other method.
There is a memebrship based organisation in NSW that has a boarding house owners chapter and it would pay you dividends to join if you have not owned or operated a boarding house before.Look into www.poansw.com.au
Have you discussed with your banker?
Boarding houses are specialized assets and each bank may have a different criteria.
The bank will instruct the valuer based on their requirements or valuation policy - so it is a good idea to talk to them before you instruct a valuer.
More often than not the valuation will be based around the income produced from the asset unless you have some plans around re-development in which case that may be taken into account.
All the best