Listed way over value

[Tom Carroll]

I'm new to REI so there's probably a very simple answer I'm overlooking but I can't seem to understand why sellers are listing at such inflated prices.

I'm looking in Green Bay, WI and am still at the preliminary stages of crunching numbers and prospecting for a Realtor (suggestions welcome). All the properties I've looked at are listed at least 20% above the max I would pay in order for the property to cash flow. These properties have been listed for several months. Working from a rough estimate of NOI and a cap rate of 6.4% I get valuations 15-25% below list price.

Is there something wrong with my math or what else am I missing?  I know I've over estimated expenses and vacancy which will hurt projected cash flow but I also assume that there is at least one unknown variable that I haven't accounted for.  Is putting in offers that much below list acceptable for multifamily?

[Joel Owens]

HI Tom,

First this topic is confusing. Many people talking about value but you haven't made it clear what type of properties you are going after and size.

Secondly you say 4+ units. There is duplexes, tri-plexes, and quads.

After that you get into commercial with 5 units or more. Different world, financing, and sets of buyers.

4 units and below you might be competing with "house hackers". They are going to live in say a 4 unit building and rent out 3 of them. They get the mortgage covered and maybe have some cash flow on top. As an investor not living there you might not pay the premium they will for a property.

Sellers can ask anything they want. I have seen sellers come off of price hundreds of thousands thinking they were way overpriced and why offer but was surprised . I have also seen sellers who were priced in the realm of possibilities but would not hardly come off at all. Other times the property was bid up to non-optimal levels to purchase.  You just never know and have to make the offers.

All offers are not created equal either. The structure of the deal might dictate the price a seller will accept.

Take for example a 10 unit building.

4 options typically lowest to highest price offered:

1. All cash purchase to seller

2. Bank finance with buyer down payment

3. Bank finance, buyer down payment, small seller second of 10 or 15%

4. Owner finance with some down from buyer.