Offer Above Market Value???

3 Replies

Hey All,

Just learning and looking for some guidance. All help and patience is appreciated!

We have been analyzing some deals, and found one very interesting one, but not sure about what to offer.

There is a 16 unit apartment building for sale. The asking price is $1.2 million but market value was appraised at $660k. The building appears to have been updated and the owner reports low vacancies in rent. The owner reports a gross income of $112k and operating expenses of approximately $32k. I have analyzed the property with the BP calculators, and my numbers come out right on target with those reported by the owner. Also looks good on the cash flow and COC %.

My husband thinks because of the high cash flow and COC % that we are safe making an offer that is above market value. He thinks that it will likely sell for somewhere between $660k and $1.2mil. I am uncomfortable ever making an offer that is above market value, but I know commercial is different than single family or even small multifamily. Any thoughts or insight? Thanks! #newbie

Find out what the standard cap rates are for your area from a qualified commercial agent.

Your DD should then tell you whether this property should be above or below the areas normal cap.

I agree with Thomas. Look at the cash flow and cap rate to get a true read on the value of the property. As you mentioned, commercial properties are generally valued based on the income they produce rather than their assessment.

Will the seller carry a note??? If doable, look into this with the seller. These properties are passed around by investors and private money/note carrying all the time. You should be able to find some lenders that can refinance, if you wanted cash out, even if a low appraisal because of the cash flow. A lot more to this, obviously, but keep your mind working and figure out all options

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