Posted by Mike on March 06, 2005 at 19:01:36:
How can you verify all this is real? Cant someoone forge their tax returns? Make fake copies of them as well as the real expenses? How do you find out if all the information is correct?
Would you contact the IRS directly? Im sure you would have a home inspection/commercial inspection done. Ray can you comment on this? Thanks
motel - Posted by DaveKY
Posted by DaveKY on March 04, 2005 at 10:26:23:
How do I determine if $1,250,000 is a good deal for a 50 room motel? Owner says it grossed about $400k/yr for the last 5 years. What other information do I need to get from him?
Any input is greatly appreciated.
Thanks, Dave
Re: motel - Posted by Jim-IL
Posted by Jim-IL on March 06, 2005 at 18:52:55:
Hi Dave!
As a person who has been involved in a family motel business (43 unit in Minneapolis), you should be aware that when selling a business of this type there is always a gross multiplier that is used to determine market value of a business. This multiplier for motels is between 2-3 times annual gross income.
Based on what you are telling me, this motel is already reaping a premium based on the multiplier. Typically the kind of motel/hotel that achieves this type of premium is in a great location, the property is in great shape, and most likely has a good franchise name with it.
Once you know what multiplier they are using you can start looking at the financials. In selling a motel an owner can expect between 2-2.5x gross.
Hope this helps.
Re: motel - Posted by HeatherFL
Posted by HeatherFL on March 04, 2005 at 12:10:20:
What you need to find out is how much he netted…in commercial real estate you can gross $400K but how much did he pay out in expenses (salary, g&a, repairs and maint.) Ask for 3 years tax returns to determine if that is the average or just an usual year…then as for an income statement to verify the most recent data.
Re: motel - Posted by harry
Posted by harry on March 04, 2005 at 13:08:20:
What is g&a? I apologize for my ignorance.
Re: motel - Posted by HeatherFL
Posted by HeatherFL on March 04, 2005 at 13:13:08:
General and Administrative Expenses…telephones, office expenditures,legal, insurance, utilities, etc.
Re: motel - Posted by Shambhu Nath
Posted by Shambhu Nath on March 16, 2005 at 24:35:09:
You can look at tax returns, rent rolls and p&L to see if everything makes sense. One will need to forge lot of things to forge taxes as rent rolls have to be real.
There is always a way to check/verify returns from IRS by getting 4506 tax validation form from seller if that is the only thing left to verify.