Complex Properties
Coming 2027: Income properties are, essentially, properties developed for the purpose of generating net rental income. Each investor is seeking a recapture of their investment and a return on that investment that is commensurate with the risk of that investment. This net income or net benefit even applies in owner-occupied properties. Realize, the operating expenses should essentially be similar regardless of ownership. Therefore owner-occupant realizes a similar net benefit as the rented property by NOT paying the net rent to a third party.
Regardless, then, of investor owner or occupant owner, the net income and net value of the income properties referenced above is essentially attributable to the real property.
There are, however, other types of income properties where there are high levels of both income and value attributable to both tangible (real property) and intangible (business) sources. This is crucial for both agents and owners because intangible assets are NOT taxable in Texas and most other jurisdictions in the USA.
Examples of complex properties:
hotels, motels, nursing homes, hospitals, bulk oil facilities, casinos, chemical plants, computer centers, country clubs, food processing plants, funeral homes, health clubs, spas, refineries, restaurants, skating rinks, grain elevators, cinemas, medical clinics, specialty manufacturing plants, vehicle dealerships, salt dome caverns, and many more
You can literally spend days researching the multitude of valuation articles and opinions spanning the last 4 decades on how to measure and separate tangible and intangible value. The elusive and inconclusive result of your efforts and time investment will probably be a realization that there is no single method, no consensus methodology on addressing or solving the problem.
The valuation and separation of component values between tangible (taxable) assets and intangible (usually non-taxable) assets is a challenge. Realize, too, that even within tangible assets there can be multiple types of assets that can and should be valued differently.
Take a hotel as an example. Certainly, there are room rental revenues. But those rooms have beds, desks, TVs, couches, chairs, pictures, etc. that are person property – still tangible and taxable, but personal, not real property. Add lounge furnishings, office equipment, bar and restaurant income and fixtures. The list expands where you have meeting and convention facilities, retail rental spaces, paid parking, etc. etc. etc.
Consider a nursing home. The residents pay a rental fee for their room. The room rent also pays for meals, nursing care, and [potentially] a multitude of other services including transportation to stores, places of worship, field excursions, etc. Consider all of the other items like common area FF&E, dining and kitchen facilities, libraries, TV and game rooms, project amenities like a pool, pet yarss, walking trails, etc., etc., etc. ALL INCLUDED IN THE ‘RENT’!
Like hotels, a significant amount of the income and value has nothing to do with the real property and should be classified and valued as intangible (i.e. NOT taxable).
These are but 2 examples from among the partial list of properties with significant sources of both income and value from BOTH tangible and intangible sources.