How Are Commercial Real Estate Properties Valued?

IL real estate lawyer, Illinois real estate attorneyThe decision to buy or sell a commercial property is likely one of the most consequential financial decisions you will ever make. In order to get the best deal possible, proper valuation of the property is essential. An accurate appraisal of a property’s value is also used by lenders when determining how much debt the lender is willing to provide. There are several different approaches used to value commercial real estate properties.

Valuation Methods for Commercial Real Estate

Many people assume that the term “value” is synonymous with “price” or “cost.” Price and cost will certainly influence a property’s value, but they are not interchangeable terms. The value of a commercial property is typically determined by an appraiser. The three main methods for valuing a commercial property include the income approach, replacement cost approach, and market value approach. The valuation approach an appraiser will use depends on several factors including the type of property and how the property will be utilized.

  • Income Approach: An income approach or income capitalization approach is the most popular way to value commercial properties that produce income such as retail stores, office buildings, and apartment complexes. The appraiser will first estimate the property’s potential gross income and then deduct operating expenses to determine the property’s net operating income. Next, the capitalization rate or “cap rate” is used to estimate the price that the average investor would pay for the income produced by the property. The cap rate is then applied to the net operating income to determine the value of the property.
  • Replacement Cost Approach: The cost approach is much more involved than the income approach. This valuation approach considers the value of the land on which the property exists and then adds the estimated cost of constructing an exact copy of the property. Put another way, the cost approach calculates a property’s value by determining how much it would cost to completely rebuild the property and then adding this cost to the current value of the land. This approach is often used to value properties that do not generate income such as churches, schools, and hospitals.
  • Market Value Approach: The market value approach or sales comparison approach is often used to value residential properties but it may also apply to commercial properties. The value of the commercial property is estimated by comparing the property to similar properties that have recently been sold or are currently for sale. If there are no similar properties in the market area, this approach may not be effective.

Contact a DuPage County Real Estate Lawyer

Proper valuation is crucial when buying or selling commercial real estate property. At Stock, Carlson & Duff LLC, we work with a trusted group of appraisers to ensure our clients receive accurate valuations. Call our office at 630-665-2500 for a confidential consultation with a skilled Wheaton real estate attorney.

Sources:

https://www.investopedia.com/articles/realestate/12/real-estate-valuation.asp
https://homeguides.sfgate.com/three-methods-appraising-commercial-real-estate-value-1567.html

Should I Use a Revocable Living Trust or an Irrevocable Living Trust?

IL estate planning lawyer, Illinois trust attorneyAlthough many people assume that a last will and testament is the only estate planning tool that they need, a will is not always the best way to accomplish all of your estate planning goals. Other estate tools such as living trusts are often overlooked due to confusion or misunderstandings about the purpose of these tools. A trust is a legally binding agreement involving an individual or entity called a trustee who holds property for the benefit of a beneficiary. A living trust is an advantageous tool for managing your assets during your lifetime and then passing those assets to beneficiaries upon your death. If you are interested in using a living trust to manage your assets, you may question whether you should use a revocable living trust or an irrevocable living trust.

Revocable Trusts

As the name implies, a revocable trust is one that is able to be revoked or canceled. If you place assets in a revocable trust, you remain in control of those assets. You are also considered to be the owner of those assets in the eyes of the Internal Revenue Service and other governmental agencies. Because the property is yours, you can choose to remove the property from the trust and use it for other purposes at any time. A revocable living trust covers you while you are alive, in the event that you are incapacitated by illness or injury, and after you pass away. One of the greatest benefits of a revocable living trust is that it avoids probate– the public legal process during which a will is validated in court. Because you remain the owner of the property placed in a revocable trust, transferring property to a revocable trust does not affect your federal income taxes or estate income.

Irrevocable Trusts

An irrevocable trust is not able to be withdrawn. When you transfer assets to an irrevocable trust, you no longer own the assets or have control over them. The trust itself becomes the owner of the property. This means that you cannot take the assets out of the trust. Because you are not the owner of the assets in an irrevocable trust, you cannot be taxed on them. However, you can continue to gain revenue on investments from the trust. Depending on your net worth and overall estate planning goals, there may be enormous tax benefits to placing assets in an irrevocable trust. Using an irrevocable trust may also help shield your assets from any future creditors.

Contact a Wheaton Trust Lawyer

Assets placed within a revocable trust may be withdrawn at any time while assets in an irrevocable trust are no longer considered your property. There are advantages and disadvantages to both irrevocable and revocable trusts. If you want to learn more about which type of trust will best suit your unique needs, contact Stock, Carlson & Duff LLC. Call our office today at 630-665-2500 and schedule a personalized consultation with a knowledgeable DuPage County estate planning attorney.

Sources:

https://www.isba.org/sites/default/files/publications/pamphlets/Estate%20Planning.pdf
https://www.washingtonpost.com/business/2020/06/17/purposes-revocable-vs-irrevocable-trusts/
https://www.thebalance.com/living-vs-revocable-trust-3505393

 

Should I Franchise My Illinois Business?

Illinois business lawyer, IL business attorneyIf your business is growing more and more successful by the day, you may be thinking about franchising. The benefits of franchising your business can be enormous, but franchising before you are ready can be disastrous. It can be hard to know whether now is the right time to expand your business. As with any business-related decision, the decision to franchise should not be taken lightly. You will need to take an honest look at your business’s strengths and weaknesses as well as your own ambitions and personal goals before you can know whether franchising is right for you.

Is Your Business Replicable?

Franchising can be a great way to expand your company without needing a large capital investment. However, not just any business is able to be successfully franchised. Is your business unique enough to be marketable?  Do you have a sustainable competitive advantage? Even more importantly, how replicable is your business? If the success your business has enjoyed so far is the result of a smart business model and unique, in-demand products and services, you may be able to replicate this success in a second location. However, if the business’s success is the result of its current location or your own dedication to 15-hour workdays, you may not be able to duplicate the success in a franchise location. Keep in mind, a franchise location must be lucrative enough to pay royalties and still leave the franchisee with a decent profit.

How Involved Are You in Day-to-Day Operations?

Another key question to ask yourself when considering franchising is what you want your own role to be in your business. If you are the type of business owner who likes to personally open and close shop every day, how willing are you to take a step back from daily operations in favor of a management position? Being a franchisor will involve a great deal of time and energy. There may simply not be enough time in the day for you to continue having a high level of day-to-day involvement in the original location while also managing franchise locations. On the other hand, if you have a staff with the leadership skills and business knowhow to run things in your absence, you may have the freedom to take on the responsibilities of being a franchisor.

Contact an Illinois Business Lawyer

At Stock, Carlson & Duff LLC, each of our skilled Wheaton business law attorneys have more than 40 years of legal experience. Whether you need help with franchising your business, buying or selling a business, creating an effective employee contract, or other business law needs, we will provide legal guidance you can depend upon. Call our office today at 630-665-2500 today and schedule a confidential consultation to learn how we can assist you.

Sources:

https://www.entrepreneur.com/article/71886
https://www.forbes.com/sites/stevenbeagelman/2019/03/28/how-and-when-to-franchise-your-business/