Multi property asking price markup?

6 Replies

Thanks ahead of time for your responses ( if any) :) When pricing a multi family property ( for the sake of this question ... a 2-4 door ) how much if any markup should there be on a property that is fully occupied? I keep seeing properties on MLS and similar sites in my area of Wichita KS where the asking price is 15-20% higher than what the local appraisal values the property. For instance , if the physical property has a value of 100k , but the asking price is 120k, does the the fact that there are existing leases in places warrant a 20% markup in the asking price? Thx and cheers!

@Lonnie Waliczek , the logistics of supply and demand determine the sale price.

ie. Not the asking price. [Who's paying 120k for a property that "has a value of 100k"?]

"Markup" just means: Can the market be tricked into paying above sold comps?

The answer to your "fully occupied" question likely depends largely on the Owner-Occupier vs Investor market in that particular neighborhood (eg. desirability of school district). Typically, Owner-Occupiers can get low interest, low deposit 30yr mortgages even for a 4-plex, so a fully occupied scenario is not what they want!

Whereas Investors, because they'd be putting down higher deposits and having worse Loan terms, may well be be happy with fully occupied homes (dependent on ROI).

More often though, I read of Investors putting in lower offers for homes that are occupied!

Same complaint from Owner-Occupiers. How about: Markdown? Cheers...

@Lonnie Waliczek

I'm an investor of 4plexs in the Las Vegas market. Right now, the whole market is up from previous year 10% plus. All types of properties, SFR, condo/townhome, and multi's are selling and very competitive. I would not say it is a mark up. It is what the market will pay. When sales numbers are out for each month, and you see that the median home price is up from previous month, then it gives you idea of the market.

Terry

@Lonnie Waliczek

Opps. Forgot about the markup question. There is value to have tenants in place versus empty apartments. It does take time and money to market the property. I would not say that it warrants a 20% markup, but it might influence the offer a few thousand to the buyer who places value on immediate cashflow.

Terry

@Lonnie Waliczek when you say “local appraisal values” are you talking tax appraisal? If so, those are almost always off from market price.

As @Jared Viernes was alluding to above, it sounds like you are referring to the assessors value? Those assessments have no basis in reality, the are simply a function for the gvt to collect the taxes that it needs to operate. They will establish a value based on the desired tax, not retail. They don't have access to the interior of a property, so there is quite a lot that they do not and cannot take in to account. I don't consider those values in any way when analyzing a property.

Also- for small multis- 2-4 units, it's best to analyze those based on condition, market rates and comps. A lot of newer investors try to use cap rates, which value a property based on the income it produces, as a way to value a property. Cap rates are really meant to assign value to commercial property, and in my book, they don't really serve an investor well when looking at a small multi or SFH.

My point is, the value is based on comps and you could or should take cash flow in to account based on your plans to fix the place up and get it to market rents. It shouldn't really matter if it's occupied or not, because if its in an area with high vacancy, that will be reflected in the comps you pull.

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