Properties Selling for Frustratingly High Prices

4 Replies

I've only been active in the real estate business since 2014, having bought/managed a 24-unit building with partners which we sold last summer. My focus is currently on commercial office/retail space, but I just can't get over the frustratingly high selling prices in my area (Kokomo, Indiana) over the past year or so!

Of course this worked in my favor last summer when we quickly sold our building to an investor from Chicago at full asking price, no questions asked. The building was in a low C neighborhood, built around 1930 with average rents of $450/unit (did the best background checks possible, but would still get some very low quality tenants and their friend/family/bed bug visitors), along with some deferred maintenance. The building effectively sold at about a 2-3 CAP. The new owners put a chunk of change into rehabbing half of the units, raising rents a little and now have the property back on the market less than nine months later as they say they "got in over their heads". We bought at $410k, cash flowed it for a few years while managing ourselves (it wasn't easy), then sold for $525k.

Another 15-unit building down the street from me, having been built /owned by the same older gentleman for roughly 30 years was also just sold at what I would say was MAYBE a 2-3 CAP by another out-of-town investor. I know the realtor who had it listed (listed at $615k ), and he told me that they received multiple offers in the low-mid $400k's which is where I thought it should be valued based on the P&L and my own analysis, then found out it sold for $580k.

While looking for off-market deals as these seem to be the only way of finding a "deal", I'm just amazed at how much properties are selling for in this market. While I tend to be conservative in my analyses, I would be surprised to see any of the recently-sold properties cash flowing based on their selling prices as they seem to sell for 20%+ more than I would ever be comfortable offering. I've lived in this area my entire life and it seems out-of-town and out-of-state investors are snatching up properties here at any cost.

Anybody else experiencing this in their area? I'm talking about selling prices that just don't make sense to myself or other local investors who I've talked to...

what ever happened to that deal that went sideways on you.. did you rescue it or let it go ?

I have a sfr in kokomo my last one I will sell you  LOL

@Jay Hinrichs after I talked to a few local managing brokers and receiving free advice from a RE attorney in town, I ended up stating all of the missteps taken by the agent aka reasons I should/could file a complaint with the state licensing authorities, asked for my $850 expenses to be paid back along with $2k consideration to sign the mutual release and move on without filing a complaint, and they accepted without any hard feelings. 

I'm steering clear of sfr until the next recession! LOL - that seems to be when investors were able to buy right. The very little, if any, cash flow that can be experienced in Kokomo with overpriced properties and where rents average $500/mo aren't worth the hassle to me

@Joseph Parker I've thought about posting something similar regarding the Indy market. I've made conservative offers on a lot of properties this year and they got snatched up at a surprisingly high price. So I've looked at other alternate markets as well and it's the same story there. A part of me wants to save cash and wait till something happens, while the restless part of me wants to get hold of off market "deals", which aren't really deals but at least you cut some competition. 

It's not the competition or the lack of good deals, but it's the amount investors are willing to pay for a sub standard area/property that baffles me. This drives up the comps and creates a false sense of "hot markets" when they're still crappy.  

Joseph,

Prices are high all over the country right now. I'm not sure what's going on in Kokomo, but we find that properties like the ones you mentioned, are bought by "wanna be" investors. Their new to the game, they know very little about the business and worst of all, they ruin it for everyone else, by paying ridiculously high prices! We see that at the Sheriff sales (mortgage auctions), too. People pay insane prices for properties and then when it's too late, they realize they got smoked. The other problem is, that it seems like there's new investors coming out of the woodwork day after day after day. So the new "wanna be's" just take the place of the guys that just got burned, thus creating more problems for the knowledgeable investors. It's a never ending circle. It's shocking at what people will pay for investment properties. Plus, they let their emotions get in the way and end up overpaying. When people let emotions come into play, they're dead in the water. I remember the days when you could take your pick of investment properties off of the MLS. That's no exaggeration either. Unfortunately, those days are long gone! Best of luck to you.