What is this "X" or "Y" or "Z" worth?
What is this "X" or "Y" or "Z" worth?
This question seems to arise about every day on HEF.
“What’s it worth?” really means, “What is its market value?”
But, what is market value? Market value is the collective opinion of buyers, sellers, lessors (owner who rent out), lessees (non-owners who rent from owners) and, to a degree, industry lenders, of the value of a specific property in a specific location as of a specific moment. Any price, or any offer, is a fact, and may have nothing to do with market value, which is an opinion of market value which can change on a moment’s notice, depending on an infinite number of variables.
Market value cannot be “determined,” but can only be estimated, albeit strong data support and a knowledgeable analysis of the market can provide a much more defensible opinion of market value than the opinion of the old fella who based his opinion on the distance to the moon strictly on the fact that he’d watched the moon every night for 70 years before he went to bed.
In the d9h, Neily may have found a “diamond in the rough,” or he may have found “the ultimate in a money-pit losing project.” I certainly don’t know, and this “nerdish” dialogue is not meant to advise anyone on the value of anything, but to perhaps lay out a procedure for valuing “stuff” that needs substantial mechanical work.
Okay, we’re all experts on automobiles, right? I am, because I drive one (snark, snark).
So let’s talk about an older Rolls Royce I have been, hypothetically, offered. I know that a highly similar but properly restored Rolls recently sold at auction at $37,000. That’s probably the highest that I can make this car worth after I’ve done all the work it needs, which includes
another engine (or a lot of work on the existing engine), transmission work, a paint job, a new interior, new tires, and body repair from when it swiped a float-loaded D8 in a parking lot.
Following is how I would try to ball-park an estimate of value. Also remember that once I’ve got that jewel into great shape, I must still consider the costs of selling it in the estimation of market value (also, neither your labor, nor mine, is free, so don’t sell yourself short by saying “I can do that cheaper than any shop.” The next owner doesn’t care who did the work, so long as it was done correctly, and if you want to put your sweat equity into it, that’s fine, but always remember, “Your labor is not free.”
Thoughts? Questions? Challenges? From your experience, what did I leave out in the below?
Value as restored: $37,000
COSTS TO RESTORE THE ROLLS ROYCE
Engine repair $5,000
Transportation of the Rolls to various shops. $500
Transmission repair $4,250
body & paint work $6,500
New interior installation $4,750
Tires, installed $1,250
Subtotal $22,250
Profit & Management @ 20% $4,450
Insurance $750
Property Taxes $100
Contingencies @ 10% $2,225
Subtotal $29,775
add loss on substitute investment @ 5%, $1,489
Subtotal $31,264
Sales Commission to sell the Rolls @ 5% of $37,000 $1,875
Total soft and hard costs for restoring the Rolls $33,139
Value of the Rolls as unrestored. $3,861