How do the numbers make sense?
Real Estate Agent · Worcester, MA · Member since 2023 · 88 posts · 52 votes
As an agent, I have been seeing insane numbers being offered on properties where there is no way the rents can possibly make sense.
I'm curious how people are spending so much on multi-family properties, especially in the current rate environment. What is the mindset or strategy when the offers are out of range from the absolute top ranges of rent that could be charged? Is it a hope that rates decline and then it makes sense? But how much damage will be done by hoping for the unknown and operating at a loss? Will rates come down enough to make sense? Are we hoping for appreciation in these situations? There are still deals to be had and things may not make sense for a couple of years at best, but some of these numbers just do not add up. Would love to hear some perspective on this!
Run the numbers.
1. 1031 exchange.
2. Newby investor doesn’t factor in maintenance, capex, turn over costs, vacancy costs the same as another investor. They are paying more to be educated.
3. Interest rate- what does it take to make this a good deal. If rates go from 8 to 6% what are the cash flow numbers? How will the market and buying pressure revalue the house at 6%?
4. REI type- from rental to MTR, higher cash stream impact on valuation.
5. Higher rent- We have had 10 to ?? Million people added recently. They can pay more at 4 to 8 occupants per rental unit. That in turn drives up other units.
6. Airbnb- house go off the market for housing. Drives up housing rates.
Is there anything specific about your town and area market? New industry coming in? Resort town? Etc.
The math works for that buyer. Just a different approach.
History doesn't always repeat but it usually rhymes!
As an agent, I have been seeing insane numbers being offered on properties where there is no way the rents can possibly make sense.
I'm curious how people are spending so much on multi-family properties, especially in the current rate environment. What is the mindset or strategy when the offers are out of range from the absolute top ranges of rent that could be charged? Is it a hope that rates decline and then it makes sense? But how much damage will be done by hoping for the unknown and operating at a loss? Will rates come down enough to make sense? Are we hoping for appreciation in these situations? There are still deals to be had and things may not make sense for a couple of years at best, but some of these numbers just do not add up. Would love to hear some perspective on this!
Based on what you're sharing, it is difficult to answer with limited information. Every investor has different criteria for what they are looking at and investing is not done in a vacuum. We all have different strategies.
Example. Here in my market, the current in place rents are well below market ($300-500) in some cases. The valuations are often promoted by using proforma numbers. During the pandemic years, it became increasingly popular to lease month to month which creates opportunity to increase rents rapidly on in place tenants.
I'm buying a condo this month in which the tenant agreed to stay and signed a new lease raising his rent $250 per month. He couldn't find anything cheaper and I got much closer to market rent. I kept him on a month 2 month AND I paid the seller's asking price without any haggling. However, I offered them only $7500 down and got a rate of 3.5% on owner financing.
I have another deal I'm working on that is a 53 unit portfolio that the seller will carry the note and is giving me incredible terms. I'm offering her several hundred above her asking price in exchange for a principal only payment - no interest.
These are just a couple of examples where I'll make nice cash flow with phenominal returns because of my structuring in the deals.
There are more than one way to skin the cat, so ask people who are doing things that don't make sense to you how they are doing it. Perhaps there are some strategies you've never seen. Also, there may be some raving lunatics about to get a very expensive lesson. Both are true in the game of real estate investing.
The best deals I've ever put together had some of the best results and everyone around me thought I was nuts. They didn't understand what I was doing. I learned that there are deals in every market and even more when most investors can't see it. The best deals are the ones you Make that no one else can see.
Happy investing buddy!