Wholesaling Multi-family properties

5 Replies

Hello BP Community

I came across a nice 8 fam property in Brooklyn for sale for about 2 million. I know i can find a buyer for this property but i don't feel comfortable wholesaling properties over 1 million dollars. Should I wholesale this property outright or simply refer the property to another investor for a finders fee. Any suggestions? 

If I do decide to wholesale the property, what figures will be vital in my analysis as to what to offer the seller? NOI? Expenses?

Is there a general rule of thumb formula applicable to income-producing properties like the 70%(ARV) less repairs less fee formula that is applied when wholesaling single-family homes?

@Iverem Rose I will tell you that for multifamily, especially anything over four units, your cap rate will be one of, if not the most important factors to determine value. So, divide your NOI by the cap rate to get that value. For example, if you're NOI is $15,000 and the typical cap rate for the area is 6.5%, the fair market value is about $230,000. Probably the fastest way to get the cap rate of the neighborhood is to ask a few real estate brokers. The 70% rule doesn't really apply as well to commercial units as it does to single-family residences.

Having said this, if you determine that the fair market value is less than $2 million, I don't see how an investor would want to buy it, unless there's something truly unique about the property and/or its potential.  For instance, maybe you discover that the rents have not gone up in the past few years and/or they have been deliberately suppressed, for whatever reason. Sometimes, landlords "like" their tenants and enjoy doing them favors. While very kind and considerate of them, it doesn't make good business sense. If you are able to increase rents over the course of the year by even a modest 10%, you'd be astonished at how large increase in value that will provide.  Still though, pray that your fair market value is well above $2 million. Also, see what sort of comparables are available.

I am currently working on something right now very similar. It's a 10 unit apartment building and the sellers are asking $2.4 million. However, I was able to get the rent roll and cash flow analysis from a local real estate broker and determined that its current fair market value is only $1.7 million.  And while in this case the rents could go up, they already have been over the past few years and the city prohibits drastic increases in rent unless warranted by significant improvements to the property and units. Furthermore, all of these people have leases going well into 2015 at their current rent. So unfortunately for me, I don't think the sellers would be willing to come down to fair market value.

If fortune is on your side, and $2 million is a good deal, you might be able to wholesale that for quite a hefty paycheck.  It's going to require a little more work than your standard single-family residence but it's totally doable.  

Wow thanks Patrick for the advice

Multi Family Housing in NYC metrics are:

Cap Rate : Net Operating Income/Price

Rent Multiple: Price/Rental Income

Average Rent Per Apt Per month : Total Rents/Total Apts/12

Price per Square foot: Price / BUILDING SF ( not lot SF)

Neighborhood Location

These are your "pitch" metrics. In NYC the buyers generally take a quick look at these and will usually right off the bat tell you yes or no. Also the multi family buyers are sophisticated and dont need you to do all the analysis for them. They just want a quick overview of the property, and if they are interested they will usually have their own people look into greater detail.

To get net operating income, you should use bank underwriting standards on a per unit basis.

Hope this helps.

@Alex Onishchenko

Was wondering if you could elaborate on "bank underwriting standards on a per unit basis."?

Appreciate the thread and the answers. Ken

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