How would you make Ian offer on a multifamily half rented?

Question

I want to make an offer on a property, but the property has half of the units vacant due to bad management. What would you do to determine your offer amount?

Rob Krach · Answer

@Brad Hammond What if it's a 4 flat and 2 of the 4 units are vacant? In this case utilizing the NOI and the cap rate is silly and a complete waste of time as it is a SFR and not a commercial space.?.?.? my original point stands. we need more info.

Ian Soto · Answer

@Michael Ablan

I agree! The rents are $150 below the average for the 14 that are rented. I want to reposition this deal and sell it in a few years, but I this is my first deal and I have those first deal doubts...

Michael Ablan · Answer

@Ian Soto  - I honestly would rather buy a multi-family half empty, than buy it at full occupancy and have to deal with all the weeding that has to be done on a mismanaged building

Steve Morris · Answer

Before you make an offer, figure how you'll finance this place.  Getting a bank loan on something that doesn't service the debt won't be easy.

Ian Soto · Answer

@Brad Hammond

Thanks brad!

The property with 14 units is valued at $535k, but I don’t know how to factor/ add value on the 10 vacant units

Seller wants $900k

Ian Soto · Answer

@Rob Krach

Not listed

14 out of 24 rented

$900k asking

Broker said that the management is bad there

Brad Hammond · Answer

Hey @Ian Soto, that's an interesting question.  I would say there is no hard and fast rule for this.  Usually, you would take the fully occupied NOI and divide that by the local cap rate.  You could offer based on the current NOI and increase it a few percentages.  You need to figure out how much money you need to be compensated to turn the property around and base it off that.

There likely won't be a lot of people competing for this property so you could have some leverage.  Also, know that a lot of banks won't lend on a property that is only half occupied so keep that in mind.  Best of luck to you, let me know how it goes.

Rob Krach · Answer

Your post includes almost no information and any response you get is complete fiction without first providing details to help us help you.

Where is the property?

How many units?

Is the property listed for sale? if yes, asking price?

How do you know half the units are vacant? What makes you think it is bad management?

How would you make Ian offer on a multifamily half rented?

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