Low Appraisal Value vs Cash Flow


I am currently researching on 3 units of condos, which is appraised at 43,000/unit (according to the appraised tax record) and the seller is asking for 201,000. One of the magnetic thing about this deal is the healthy cash flow. Given the NOI plus the cap rate, the asking price is totally supported by the rental income. Apparently, the appraised value is somewhat disappointed (43,000 x 3 units = 130,000 vs 201,000). The tax records reveal those 3 condo units have not been appreciated in value in the last 5-6 years. Any ideas or red flags about this deal?

Thanks a lot.

<<Any ideas or red flags about this deal?>>

Yes…a big one. Using “appraised tax” value for anything except lining birdcages. The reason that the “3 condo units have not been appreciated in value in the last 5-6 years” is that they have probably not been reappraised. Think about it…a city/county has thousands of properties on their books. There is NO WAY they can accurately appraise all (or even a large percentage) of the properties in a year or 2 years, or even 5 years.

Do not trust tax appraised values!

Get an appraisal from an appraiser or at least a CMA from a Realtor and see if it is in the ballpark.

If the deal will support itself with the income (don’t forget the HOA fees along with all of the other expenses!) and the deal makes sense for you, do the deal.