we are wanting to make an offer on 12 unit multi they are asking 185K—how do we decide what to offer/how to structure and should we use a REagent? thanks
you could get comparable sales of the apt in the neighborhood using online service like realquest.com. This is not so accurate as comparing things that are on market.
Then calculate expenses such as insurance, escrow cost, repair, property management, and other any hidden fees that seller are paying. Ask them for expenses statement and verify each one to make sure they are accurate. You dont have any surprises costs
Take into consideration of income, vacancy rate
You need to calculate NOI, cap rate (1-10% where 10 is highest) and debtservice from the above . Then you can decide whether you want to buy or let go.
To help you decide what to offer:
- What is the income of the property?
- What are the expenses of the property?
- Calculate what the Net Operating Income (NOI) is by subtracting the expenses from the income.
- What is the cap rate? A realtor can tell you what the market cap rate is for your area and building type. Just make sure that it is in line with your own investment needs (your particular cap rate).
- Then take NOI divide by cap rate to get your max offering price.
You don’t need a realtor to make an offer but it would be wise to use one, especially if the property is currently listed with a realtor.
Thank You Patti, so much. I am confused about the cap rate. I thought the cap reate had to do with the profitability of the property. Definitely a newbie question. Am i way off on that. thanks again for your time. taylor
The cap rate is commonly used to help determine the value of an income producing property. The term is often mis-used by realtors and brokers. What the cap rate doesn’t tell you, is this a good investment for YOU? Will you get the rate of return that you want? The true value of the property is also dependent on the financing terms that you can get as well as comparable sales, any deferred maintenance, market conditions, etc. All of this you will uncover during your due diligence phase.
Patti --your doll–thanks so much. I will try to make this my last question. Are there such things as comps and appraisals for multi families. Seems when i ask the agents or owner about such things —they dodge the question. Also multi-family inspectors. Okay —that was a couple of questions. Just hard to imgine buying something so large without having it inspected. thanks in advance.
Yes there are comps and appraisals for commercial properties. Your lender will insist and usually select who the appraiser is (cut down on fraud). Your loan will be based on the appraised value of the property (80% LTV).
Owners don’t want to pay for an appraisal, so they will let the buyer take care of it.
A Commercial Realtor should be able to provide comps for you. Make sure it is your realtor…not the listing realtor.
Good luck. Buying your 1st commercial property is a big step but definitely worth it.
Patti Porter—your the best ----thanks for your time!