Has anyone sold anything in Multi-Family this year and how did it go?

Question

I'm listing an 8 unit multi-family next month that I've held since 2017. I've been waiting for the right timing for the past 2 years but I don't think that exists and want to 1031 into a SFH.

I'm curious if any of you went through a deal from the sell-side this year and how the market is and what your experience/expectation was like? Did you get close to your expected price?

Chris Grenzig · Answer

@Charles Seaman the sub 100 unit space in north and central florida is similar to the 100+ unit space. I ran and helped build a portfolio of 1000 units in Jax from 2017-2020 and we've acquired 150 units in the sub 100 unit space 2020-2023, so I have experience in both.

Plenty of interested parties looking to buy, but the buy-bid spread seems to be pretty wide and not a lot transactions occurring.

Charles Seaman · Answer

@Peter Li  The property that I sold was in Augusta, GA.  The ones that I attempted to sell are in Jacksonville, FL, North Charleston, SC, and Decatur, GA (Atlanta MSA).

It's definitely more of a buyer's market for larger multifamily properties.  Smaller multifamily might be a little bit more balanced.

For larger multifamily, the most important metric for many buyers right now is cost basis (price per unit).  The other important metric is cash-on-cash return because many buyers of all real estate assets are focused on cash flow right now.

It might helpful to look at your property from the buyer's side to see what you would pay for it now.  The goal is always to sell it for as much as you can, but this will help to give you a different perspective.

Dave Foster · Answer

@Peter Li The market gives, and the market takes away - expected price depends  on what your expectations are.  And that makes it tricky.  I talk with clients all the time who can't find "deals" for their replacement properties.  "Everyone is asking too much".  What that really means is that the market is saying its expectations are too low. (and they probably got a strong price for their sale).  I also talk to clients concerned because "no one will pay me what my property is worth".  This too, is just the market telling them that their expectations need to be recast.  So kudos to you for looking through that lens.

Buy low and sell high, and sell high and buy low periods don't come around very often at a macro level. What is more important is the "why".  The 1031 exchange will allow you to change sectors and locations, and types, while holding you harmless tax-wise.  So it really comes down to some other factor that makes it worthwhile.

Many times, you're only going to go sideways on price (you sell for less than you want, but you get to buy cheaper than you would have).  Or you sell for top dollar, but also to pay top dollar for your replacement.  That doesn't improve things by itself.  But if you sold to escape a $100K roof replacement coming up.  Or if the neighborhood was causing a rent decline.  Or you saw future growth prospects for SFH to be better.  That move would actually improve things dramatically for you.

You can use your 1031 exchange to exploit a short-term market shift.  If you see the market continuing to drift or even slightly decline (as many of us do).  Then you can use your identification period to allow the SFH sellers to soften a bit more. This doesn't generally result in a home run.  But at certain times in the market, like the period of uncertainty now, it can result in a better return for you.

If you do find a replacement property you like, you can get it under contract right away.  You just can't take title to the new one till the old property is sold. So use contingencies or a lease with an option to purchase to give you time to sell.

Caleb Brown · Answer

There's a broker I follow who's in LA, not sure if he's close location wise but small multi family is his bread and butter. His name is Jake Glaser

Peter Li · Answer

Thanks for the response Dave! I think that makes sense, I just have to come to grasp that the market price is what it is. Along those lines if I were to wait for a higher valuation, then the 1031 replacement property would inevitably rise as well and so what was the point of waiting in the first place. Unless there was a significant sector gap as you pointed out, but I don't think LA multi-family and SFH are quite there at that point.

Chris Grenzig · Answer

I think just depends on how badly the sellers need to sell. If their only motivation was a broker told them he could sell it for $X then they might not come down. We've seen several or dozens of properties get listed and then get taken down and not sell.

Or maybe a buyer thinks its worth $X, broker says we can try but I don't think it will sell for that, and they decide to list it anyway just to see what happens. So pricing might not even be broker driven, could be buyer driven.

Peter Li · Answer

I'm expecting this spread, the sellers want too much and it's a fact it's a buyer's market so I'm expecting to go down if needed to get the deal done I just hope it's not too down and there's some interested parties that will give me a solid floor.

Charles Seaman · Answer

@Peter Li All of my experience is with larger multifamily deals, so it might not be an apples-to-apples comparison.  I sold one (1) multifamily property and attempted to sell three (3) more multifamily properties.  The market is definitely softer than it's been in a long time and it seems like it's still getting softer.  While I wasn't totally surprised by the result, pricing came in lower with each of these deals than I would've liked and the buyer pool was definitely newer and more inexperienced because many experienced buyers are still sitting on the sidelines.

If you've owned this property since 2017, there's a good chance that you'll still be up from then, but it might not be by as much as you're expecting it to be.

Has anyone sold anything in Multi-Family this year and how did it go?

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