Recently, I have been doing some research on my local economy and rental market and have a few questions regarding my findings but will first give a little information on my local market.
-Metro population of about 300,000.
-Jobless rate 8.8%
-rental market with vacancy rates of 11% - 12%
Now, the economy in my market has been hit with a major blow from its primary industry (automotive) causing the real estate market to soften greatly. There is still a high amount of panic from the general public in the area, but I feel there is an upside to these economic problems.
As I’ve been doing research I have also found that the job market here is going to be recovering slightly with the support from emerging industries in the area (healthcare, services, and travel), also, there is a large number of young adults which will be entering the job market very soon which I believe will also help lower vacancy rates. However, the economy and real estate market are still in turmoil and it appears that it will remain this way for at least the first half of 2007.
I have also found that the asking rents are far too high than they should be. It appears that landlords haven’t adjusted rents according to the current state of the local economy and market which I believe will inhibit the ability to fill vacancies. Another problem I see is that landlords are dumping their properties as if they are in a good, stable market and are 100% occupied.
So, with all that being said, how much would you pay for a 4-plex that is 75% occupied with an asking price of $240,000, and a proforma cap rate of approx. 8%?
Also, what would be the proper way to value a 4-plex? Would you use the same tools as you would to valuate a 10+ unit building? Are you able to valuate these smaller complexes on their current NOI?