Pricing Income Properties for Sale

Thinking of selling two or three of our rentals this Summer. Curious how other investors price their SFRs and 2-Units for sale. Assume their is cashflow (tenants are in place).

Base asking entirely on cashflow coming in or appraised value, etc?

Edited: 06/26/2010 at 07:53AM

Ryan Webber

Wholesaler · Amarillo, Texas

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Icon_minipost Apr 10 '09, 01:23 AM

Normally if there is a tenant in the property you will need to factor it from a cash flow perspective (either a gross rent multiplier or ROI).

The thing is that many times properties will sell for much more without a tenant in them. Their value to a homeowner can be significantly higher than their value to an investor.

You also need to factor in your buyer pool. With any type of rental property, your buyer pool is dramatically smaller. Your buyer will be an investor, bottom line, but if your property does not have a leased tenant in it (someone who you can give a 30 day notice to get out) then your buyer pool includes homeowners AND investors. Keep in mind that there are a lot more homeowners out there looking for properties than investors. I would guess its 9 out of 10 homeowners.

Now if your dealing with duplexes or bigger then normally you will be selling to investors only, but if you are selling single family properties you need to carefully consider if its best to sell it as a rental property or not. Obviously, kicking out your tenant or at least having the availability to will/can increase your carrying cost and will decrease the appeal to an investor, but it greatly improves the appeal to a homeowner.

Edited: 06/26/2010 at 07:53AM

Chris Anderson

Real Estate Investor · Niceville, Florida

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Icon_minipost Apr 10 '09, 01:31 AM

For your SFR, I would seriously doubt you would want to sell on a cash flow basis. I do a lot with SFR homes and the main reason that I like them is I can sell them to a mom & pops that wants to own them.

However, given the state of the market, now may not be ideal timing. One other thing I don't know if you have considered......

What about "owner financing" the SFR out via a lease-option or contract for deed depending upon a few variables. Could get you some good cashflow and could cashout price down the road. I do this with almost all my personal properties.

Edited: 06/26/2010 at 07:53AM

Matthew Gil

Real Estate Investor

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Icon_minipost Apr 15 '09, 04:10 AM

At first, I was thinking of pricing the properties using the 2% rule, but at that asking price, I'd be practically giving away the properties. It's a good rule for purchase, but not for selling. So, I won't be doing that.

Edited: 06/26/2010 at 07:56AM

Tom Tarrant

Real Estate Investor · San Diego, California

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Icon_minipost Apr 19 '09, 08:00 AM

more like 1% rule. 2% would be overpricing it to most investor buyers.

example: if it rents for 850/mo. then price it at 85,000.

Edited: 06/26/2010 at 07:59AM by Tom Tarrant

Jon Holdman

Real Estate Investor · Denver, Colorado

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Icon_minipost Apr 19 '09, 08:13 AM

The 2% rule would make the price on an $850 rental $42,500. I'm sure it would sell at that price. But many folks use the 1% rule, do that would probably draw a buyer.

But SFRs are usually priced based on comps.

Edited: 06/26/2010 at 07:59AM

Jon Holdman, Flying Phoenix LLC