Investor · Willow Spring, NC · Member since 2013 · 788 posts · 285 votes
I'm contemplating selling a SFH I have in Michigan and using the money to put down on larger/additional properties. I have checked out a few of the turnkey providers that post on here and see CAP rates listed between 8-14% for a property depending on the area.
Can anyone suggest an appropriate CAP rate for SE Michigan? I'm interested in how I would price mine for sale.
Investor · Willow Spring, NC · Member since 2013 · 788 posts · 285 votes
13y
Yes, its leased at $925/mo. I have local property management in place. The house has been rehabbed with new windows, flooring, doors, insulation, bathroom, H20 tank etc.
I'm looking at multi-family now and debating whether to sell and reinvest, or keep and add a duplex.
Involved In Real Estate · Rochester Hills, MI · Member since 2010 · 812 posts · 178 votes
13y
In addition, no appraiser is going to consider CAP RATES on a SFR as relevant, they'll exclusively take a sales comparison approach, so, if you're going to try and base pricing on CAP RATES, you'll need an all cash offer.
Specialist · MI · Member since 2013 · 30 posts · 7 votes
13y
Your right Joe, cap rates and ebita are all commercial. I would suggest selling the house on a land contract, this way you get a large cash down and a monthly spread. Selling on LC you can usually sell for $25k higher and since your servicing the note the tax rate is a lot lower. Buyer will maintain the house and pay the taxes, it's a much nicer way to produce more cash flow with a lot less hassles.
Investor · Willow Spring, NC · Member since 2013 · 788 posts · 285 votes
13y
I understand CAP rates are typically reserved for commercial properties, maybe we want to call it ROI. The turnkey providers were calling it CAP rate, so that's what I went with.
I also understand the typical methods used to price a residential property if the buyer isn't interested in financial performance.
But if you view the available properties on turnkey provider websites, each area seems to return a similar ROI. If the property pulls more rent, the price goes up accordingly. I'm checking Michigan turnkey provider sites and they seem to all project a ROI of 12-13%.
Investor · West Bloomfield, MI · Member since 2009 · 358 posts · 306 votes
13y
Take any financial projections you see on turnkey properties with a healthy dose of skepticism. Too often, even on this site, I see ROIs that were reversed engineered, meaning they started with the ROI they thought long-distance investors wanted to see, then backed out enough on the expense side of the ledger until they had boosted the ROI into the magic range. Maybe with a little exaggeration on the rental income side to help out.
No maintenance expenses? "The house is freshly rehabbed." "We buy you a home warranty (out of your purchase price)."
No accrual for capital items (roof, furnace)? "The house is freshly rehabbed."
No vacancy expense? "We guarantee your first year's rent (out of your purchase price)."
No bad debt/eviction costs? "We guarantee your first year's rent."
No inspection/certification/accounting/legal fees? <crickets> or "We pay your first year's inspection cost (out of your purchase price)."
The real return is what happens in Year 2, or Year 6.
How are you planning on selling the property? If it's on the MLS it has to be in line with what local investors will pay. That's always less than the turnkeys sell for. Do you have a way to market effectively to the out-of-state or foreign turnkey buyers? That's the only way you'll get the turnkey price. Some turnkey companies may be willing to help you sell it but they'll want a good portion of the spread between their cost to produce a turnkey and the retail turnkey price. Otherwise, why bother selling someone else's turnkey for a fraction of the profit of their own inventory.
If you want, send me address and I'll send you a quick report on recent sales in the area.
Investor · White Lake, MI · Member since 2013 · 165 posts · 41 votes
13y
I would say the Zillow estimate of $51k is about right. I have a house about 1/2 mile North of there. The schools are not that great and that area has been hit really hard with foreclosures.
Bryan H.