Help with setting price for Rental property in nice Atlanta area

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Help with setting price for Rental property in nice Atlanta area

Julian Boardman
Member since 2019 · 3 posts · 0 votes

Good morning to all! New to BP and appreciate all the content.  We are looking to sell our great rental property (see why further below) as we want the capital out to do other larger deals. Otherwise, the cash flow is too good to pass on for us. I am a contractor so we did the work.  Here's the skinny:

Purchased 1200sf home in nice area, very popular area in Atlanta (Brookhaven) years ago for $110k. Added about $300k new 2013 construction to tear down and rebuild (leaving some slab and basement walls into a main home of 4bed/4bth and 1bd/1bath separate apartment.  2880sf main and 900sf apartment, 2 car garage, parking for 6  cars, 7500sf lot. 

Rental income is $3650 up and $1295 ($1.33sf) down (includes utilities on apt), just under $5k per month. Rents in the area go for near $1.75+ sf for apartments. Been consistently rented for 5yrs. Expenses run for us $700 per month but new taxes on sale will push to $1100 per month. With debt of 20% down, 4.75% rate, included, NOI is about $42k per year.

Our agent is thinking sell in low $700's selling as single family home with inlaw suite (new and late model construction runs $225 to $260sf) within 1 mile, many comps.  We are thinking maybe sell as investment property but at what cap / cash on cash for class A/B property?  Greatly appreciate input !!!

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  • Dougie Barnard
    Attorney · Atlanta, GA · Member since 2018 · 10 posts · 5 votes
    7y

    @Julian Boardman when an investment property is cash flowing this well, I’d hold onto it for dear life. 

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  • Jonathan Taylor SmithBusiness Member
    Rental Property Investor · Durham / Raleigh (Triangle), NC · Member since 2015 · 841 posts · 802 votes
    7y

    @Julian Boardman - What do you owe on this property? Will it appraise for $700K? Will it sell for this amount with tenants present? And if not, how long to get them out and at what cost? What will you NET from the sale after taxes, commissions, etc... or are you going to do a 1031 Exchange?

    And have you considered doing a cash-out refi and keeping the property? You can likely refi the property for 75% of appraised value, and if that is $700K, depending on what you owe, a cash-out refi might NET you more than the sale post-taxes, commissions and other fees. Further, with such great cash-flow, you might be able to get an even higher percentage of the value, although I'd exercise caution in that. I normally refi at 65% to 70%, but never more than 75%.

    But I never plan to sell anything, and I've got a LOT of equity still locked in my properties. Cash-flow positive properties are not always easy to come by, so think carefully before you part with it and if you still decide to do so, think again. Now I say this having not yet tried a 1031 into an even better property (or multiple), so if that's what you're doing - Hey!?

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  • Julian Boardman
    OP
    Member since 2019 · 3 posts · 0 votes
    7y

    Dougie,  

    We think that might be best but also, we look at opportunity costs.  The property will not increase much more for next few years, say 3%, so cash flow is creating $42k.  

    Current property - $400k equity, creates $42k cash flow yr. 

    Asset appreciation - 1-3% depending on market conditions as we believe topping out in the area.  

    New property to invest using $400k as down payment, loan of $900k -$1.3mil buy- assumptions.  20 units at $700 unit average rent or $168k minus debt of $50k debt and $60k expenses = $58k cash flow.  

    With an NOI of $58k including debt service with rents under market by 10%. Also do some value add to increase another 10% over 2yrs. So gross rents go up to $91k, less $9k vacancy = $82k NOI.

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  • Julian Boardman
    OP
    Member since 2019 · 3 posts · 0 votes
    7y

    That's Jonathan for the informative reply.  We owe about $270k on it and 10yrs left on our note of 15yr amortizing at 3.75%  fixed rate.  The payment is $3400month with $2k going against principal, so not really cash flow to us.  The really good thing with this property is the tax is based on $300k, not anything near the current value.  We would prefer to have 10-20 multi unit bc if the upstairs is vacant for 2 to 8 weeks, that is 15+% of the rental income.  If we refi, the rate would jump to possibly  4.75%.  So yes, most would keep it as is but then  again, we only get about $1700 cash flow bc of the principal paydown.  The agent feels strongly about a $700k value but we are prepared more for a mid $600k value. We will probably do a 1031 to a multifamily if we can. We have options but keeping as it limits other opportunities. 

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  • Rick Baggenstoss
    Developer · Decatur, GA · Member since 2011 · 1k+ posts · 1k+ votes
    7y

    I'm with the others.  You should find a way to lever up, buy/build more good units, and keep your current house.  

    I have a rental (big house and apt) in City of Decatur with similar numbers.  The equity calls to me as an opportunity to cash out and improve my numbers.  However, the mortgage pay down and healthy rent increases keep me from selling.

    Here's what I've considered as the best approach.  A balance to my growth and safety goals.   Keep the house, refi to ~500k loan,  buy $2M commercial with the cash out, and add $50k to reserves.  You need to evaluate your portfolio for risk, cash flow, growth, etc. Don't get too hung up on the cash flow from your Brookhaven house while ignoring the cash flow, return on equity, and appreciation of what your new portfolio would be.

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