Curious as to how a boarding house would be valued? Would it based on the asset or the income it generates? Or both?

Hi Justin,
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
Regards
Scott

Hello 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

Regards,

John

Justin

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
Adam Huxley

Hey Justin,
All good information.
I recently assisted a client with the financing of a boarding house and it was simply looked at as a residential property.
Another lender may view it completely differently.
As stated above, there are many many factors to take into account and the structure of any lending (if that's what you want to do) is dependent on knowing what you want to achieve.
If the question is not a finance related question, and just a curiosity question, then the simple answer is either or both, depending on who is valuing it and the purpose of the valuation.
you may take the income into account or it may be based exclusively on the raw asset value.

What are you hoping to achieve Justin?
Do you own a boarding house?
Are you thinking of buying a boarding house?
Are you thinking of converting a property from a standard property to a boarding house?

let me know where you are headed and I'll see if I can give you a little more direction...

Thanks Justin

Graham Doessel
P.S. You look a little like a Justin G... I knew years ago in Qld... Is that you? Either way, happy to help where I can :-)