What To Offer On An 8-Plex

10 Replies

Hello. I don't know how much to offer on a multi-family property I am interested in. It is 32 years old and has 8 units, which are 1,218 sf. each. They are currently renting for $565. and the interiors are not too old. They look really decent and fairly updated. They want $45,000./unit. It is not in a flood plain. How much could I raise the rents next year, if I do get it and the bigger, more important question is: how much should I offer, below the asking price? The roof looks to be in good shape and it has a brick exterior. Not sure what else to mention. I, of course, will have any offer I make contingent upon a satisfactory inspection and an appraisal. Would 10% off the asking price be too much? It has been on the market for 152 days. What say you all? Thanks for any help you all can give me.

Best regards,

Jeff

I don't have much insight other than to ask why it's been on the market for 152 days.... those always ring a bell for me and make me wonder why. 

Have they dropped the price at all?

You need to study and understand your market inside out and backwards before you ever consider investing. Research your market until you find and fully understand all the numbers.

Every property is community specific. Get the assistance of a local realtor to assess the property keeping in mind they are not very reliable but will be a start point.  

Simple answer is you are the only person in a position to find the answers.

@Jeff Russell So just a couple of things to think about:

1.) 32 years is right in between a 30-35 year roof expectancy.  Roof replacements aren't cheap and it's not that easy to see all of the wear and tear from the outside.  Unless you know when it was replaced, I'd assume it's at the end of life.  Who knows, just don't underestimate the expense.

2.) $565 seems pretty low to me for a 1,200 sq ft unit.  It's low for a 1 bedroom/1 bath unit.  All sorts of hiccups and issues come with renting to tenants at this price point.

3.) You also have to think that in a sizable unit (1,200 sq ft) you're going get a few people.  Generally, in 8-plexes you're paying for at least water when it comes to utilities.  More people means more water usage.  It also means more wear-and-tear on the units.  

4.) Combining 2 & 3: You'll end up spending a disproportionate amount of your gross rents keeping up and maintaining these 1,200 sq ft units.  A tenant sees a large apartment, you'll see 1,200 sq ft of flooring!  A tenant sees a good amount of square feet for mom, dad, and two kids.  You see a big ol' water bill.

5.) Short of properties sitting in a rural area that investors don't have interest in I have a hard time seeing why something would be on the market for 6 months during (arguably) the best real estate market of our time.  Other investors are seeing something that you're not.  

If you haven't already, see if they have financials for the past 12 months.  You want to get a handle on the utility bills, if the owner pays anything for trash, etc.  You also want to get a sense for collected rents.  A rent roll doesn't usually highlight who is behind on their rent, which units (if any) had an eviction last year, etc.  It's not uncommon for lower-rent properties to have a material difference between projected gross rents and collected rents.  

Just some food for thought, for all I know it could be an awesome property.  

The offer needs to be based on your buying criteria instead of taking a percentage off the asking price. 

A few questions to ask yourself...

What is your buying criteria? What are the cap rates in your market? What type of cash flow are you looking for? How much will it cost to improve the property? 

A few quick tips I would suggest...

To find potential rent values contact a local real estate agent and property manager. Also, take a look at the MLS, Craigslist, and Zillow for current rentals.

I would reach out to local investors and see if they can provide more insight. 

I haven't, nor has my agent, been in contact with the sellers agent. I'd like to talk to the seller personally, to see what his/her monthly expenses, on average, have been. Also, how long have they owned the prop, why are they selling (if that really matters), when was the last time rent was raised and how much and anything else I can come up with, that I believe is pertinent. Listening to the reply about why they are selling it, could tell you something they wont tell you, or not, but I like to ask. If the agent gives me a different reply, then maybe something is fishy. I'll get back to you all when I learn more, very soon. Thanks for the input, folks.

I need to call a roofer in that area and ask how much a new roof for that building would cost and a garbage company, as well, in the event I can't get that info from the agent or seller. I really need to find out how many and how much, all the associated monthly cost could be, before I make my offer. I am currently listening to“How to Evaluate and Offer on Rental Properties", the pod cast Brandon did last week. This is very important stuff for those of us who are serious about retiring as early as possible. I want my family to have the lifestyle of envy.

Jeff, what part of Louisville is this building located? 

I’ve seen the one you’re referring to. It’s in a not so hot area and is all 1 bedroom units.

It was priced too high in my opinion. Make an offer on what works for your numbers. It has to give you the return you need to meet.

Jordon, you have the wrong complex. I'll end this thread. Thanks everyone for the helpful thoughts and ideas.

@Jeff Russell

You need to understand what the NOI is on the property and talk with broker about what a reasonable cap rate would be. From that you can get an idea of the value of the property. Then consider any deferred maintenance that has been well deferred and make adjustments accordingly.

Also, really look at the property and see if there are any value add opportunity to make more money by increasing NOI. Again NOI/Cap Rate (in decimal form) =Value (based on Income Approach)

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