property year after year. Purchasing a building should Extraordinary floor treasures not be confused with speculating on condominiums of Machinery depreciation varies dependant on country, other types of housing that can go into the tank by application and governmental incentives. Accountants speculators. You are your own tenant – that is the key use this, of course, but they will not know if there is hidden value. A zero-value piece of production equipdifference. It is also possible to do take this approach with print- ment can be assessed differently through an appraisal, ing machinery, but the difference is the asset generally which solidifies the value, or by a willing buyer. Gooddoes not increase in value. Even so, depending on what will is much harder to value, because, unless your busirates you are offered, self financing still can be a way of ness has long-term contracts, most assessors and even keeping more of what you make. The risks are much buyers will look at the book of business as a moving higher because your cost of funds is a lot more than the target of sorts. The same can be applied to Intellectual banks. In this business, larger funders make profits on Property. For the vast majority of printers, their process is one of manufacturing and may volume. not have any unique or legally proBanks and other financial institutected technologies. tions understand real estate. They There can be pleasant surprises know profit on a mortgage can somefor a printer, however, when their times take decades but they also plant floor is valued. For example, appreciate real estate’s security against the piece of equipment purchased inflation. Supplying a mortgage is not for a special job, for that customer mission impossible for these lenders, now long gone, may have sat idle because they know how to measure for years, but, if it can be deterprobability. mined as unique or rare in the marOf course, ownership is not withket, it might be worth a lot more out risk: A new roof can cost hunthan imagined. Strange as it may dreds of thousands of dollars, or seem, equipment you would not perhaps there maybe environmental take a second look at for running a issues such as contamination of soil job today may hold value you never that can cost millions. General upthought possible. In my appraisal keep cannot be amortized to a tenant assignments I’ve frequently uncovbut must be funded out of cash flow. ered dollars to the surprise of Just like a lease on a vehicle, however, to the long run of success by clients. whether a tenant or owner, the user Key Warren Buffett is his ability for Tony Langley and other sharp eventually pays. These are the obvious unearthing the hidden value of business owners understand how to major downsides of real ownership. real estate in company holdings.
“You ain’t gonna learn what you don’t wanna know” – Jerry Garcia
read a balance sheet. Moreover, they also have an inane sense of looking through financials for hidden treasure buried and depreciated. Although it is considered old school now, many consolidators zero in on extraordinary treasures like booked losses that can be gained or out of date asset and real property values. Look around your business and determine if buying and holding real property is doable. Look very hard at your asset portfolio and ask if there is a surprise or two. Companies like Loblaw have all those shareholders to keep happy, but do you? Remember, especially in real estate, little else in the world of business depreciates each year (on paper) while appreciating in market value. Every building owner knows this simple truth and it is time you too considered it. Nick Howard has been involved in the printing industry since 1976. He manages Howard Graphic Equipment Ltd., which has been involved in the supply, sale, rebuilding and appraisal business since 1967. Nick can be reached at: nick@howard-direct.com
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