Negotiating Below Market Rent Apartment Sale

1 Reply

new to all this so sorry for the basic overall strategy question. I'll be selling inherited apartments soon, around 30 units. the rents were well below market and this has been reflected in the commercial appraisal price. should be value to the potential buyer we'll be meeting with. what strategy would others use when entering into negotiations in this type of situation? what i'm thinking now is to point out the upside in revenue and appreciation, ask for the appraisal price, and not be very negotiable on the fixes inspectors find. i'm not against hiring a property management company (i've been doing maintenance the last few years) and revisit down the road once rents are in-line, but i'm not the only party involved in that decision. i've also been told few deals end at appraisal price, so i could be in left field. thanks ahead of time for any insights.

Chad,

With 30 units, assuming they are all one project, then your best bet is to figure out how to get them up to maximum rents with minimum money in and time. Better to have 90% occupancy at high rates than 100% at low rates. Buyers are going to figure 10% vacancy anyway (or more depending on class).

You can point out upside in rental income all day long, and any  investor worth their salt is going to ask why you want them to pay for your laziness. If you want the price, show me the income. I'm not going to pay you for potential, I'm going to pay me for getting the building there.

It sounds like you have family or partners involved in the decision. My strategy would be buy them out. I would tell them I would either give them appraisal price, and they can walk (assuming the numbers jive) or I can give them the value based on the property as it's running and some fraction of the profits. 

If they are in multiple projects (ie SFR here, Duplex there, 10 unit elsewhere) then fix one to maximum value/rent and sell it, then work through each one until they are all sold.

Of course, with the amount of capital floating around now, there are more folks that are willing to take a bad deal, so you might just get lucky to sell at appraisal. I can tell you most everyone I know wouldn't purchase there.

Good Luck!
Jim

Free eBook from BiggerPockets!

Ultimate Beginner's Guide Book Cover

Join BiggerPockets and get The Ultimate Beginner's Guide to Real Estate Investing for FREE - read by more than 100,000 people - AND get exclusive real estate investing tips, tricks and techniques delivered straight to your inbox twice weekly!

  • Actionable advice for getting started,
  • Discover the 10 Most Lucrative Real Estate Niches,
  • Learn how to get started with or without money,
  • Explore Real-Life Strategies for Building Wealth,
  • And a LOT more.

Lock We hate spam just as much as you

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here