Why isn't my 5-plex selling?

Multi-Family and Apartment Investing
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Why isn't my 5-plex selling?

Brad HammondBusiness Member
Real Estate Agent · Portland, OR · Member since 2016 · 1k+ posts · 605 votes

I have a 5-plex that has been for sale since late May and I've gotten very little interest in it.  Am I being too optimistic that it would sell in a couple of months or is there something I'm not seeing?  The cap rate is average for the area (5.5%).   Any and all points of view would be appreciated. 

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Philip Williams
Rental Property Investor · Rockford, IL · Member since 2014 · 385 posts · 702 votes
7y

I have also never understood why brokers put below market rents like it is a positive. If the rents could be easily raised with no improvements why haven't they?

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  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    Original list price is 55% higher than you purchased about 2 years prior. That seems pretty high.

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    7Reply
  • Brad HammondBusiness Member
    OP
    Real Estate Agent · Portland, OR · Member since 2016 · 1k+ posts · 605 votes
    7y

    Hi @Russell Brazil, yes but I added a unit ($11,100/per year) and increased the rents slightly.  

    2Reply
  • Jim S.
    Rental Property Investor · Denver · Member since 2017 · 121 posts · 121 votes
    7y

    Hi Brad,

    Is 5.5 the cap rate for properties that small? 

    5 units is basically the worst possible number for an investment property. It doesn't qualify for conventional financing, it's too small for Freddie Mac's small balance program ($1MM+), and it's fairly low yield for a cash investor as well. A typical buyer will have to go to a bank and at least in my markets the rate on a 5 yr balloon note is ~5.25% which a 5.5 cap would be too low of debt service coverage for a bank to lend on.

    24Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    7y

    @Brad Hammond

    Consider eliminating a unit. In many locations 4 unit properties are worth more than 5 units. Larger buyer pool for 4, considerably.

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    20Reply
  • Bjorn AhlbladPro Member
    Investor · Shelton, WA · Member since 2017 · 6k+ posts · 6k+ votes
    7y

    @Brad Hammond If it is not selling it is the price-and you know that.

    20Reply
  • Hadar OrkibiPro Member
    Rental Property Investor · USA / NZ · Member since 2016 · 1k+ posts · 812 votes
    7y

    @Brad Hammond its all comes down to the price... does the unit you added has permit? 

    Did you get any offers os far? if yes, then at what level? 

    1Reply
  • Philip Williams
    Rental Property Investor · Rockford, IL · Member since 2014 · 385 posts · 702 votes
    7y

    I have also never understood why brokers put below market rents like it is a positive. If the rents could be easily raised with no improvements why haven't they?

    48Reply
  • Seth Ferguson
    Rental Property Investor · Member since 2019 · 407 posts · 267 votes
    7y

    Properties don't sell for two reasons: price and exposure.

    4Reply
  • Kevin Grove
    Flipper/Rehabber · Charles Town, WV · Member since 2019 · 42 posts · 43 votes
    7y

    Brad, there are tons of 5-8 unit properties that I would love to buy, but I am forced to ignore them. Like Jim said, this is because 1) I cannot get conventional financing for them, 2) they are too small to get a commercial loan, and 3) I can't afford and wouldn't want to buy them with cash. I agree with Russell. If you could make it technically a 4-unit, you would have a better chance of selling.

    4Reply
  • Todd Dexheimer
    Rental Property Investor · St. Paul, MN · Member since 2016 · 3k+ posts · 3k+ votes
    7y

    Price. It's a 5 unit, not a 100 unit. It is not sold on the cap cap rate. Your building and every other building will sell based on price. Also, what is the average days on market for 5-10 unit properties? 

    4Reply
  • Brad HammondBusiness Member
    OP
    Real Estate Agent · Portland, OR · Member since 2016 · 1k+ posts · 605 votes
    7y

    Thanks @Todd Dexheimer. When I search the MLS for sold 5-plexes the cap rates are anywhere from 3%-6% and it takes anywhere from a month to a year to be sold.

    0Reply
  • Brian Garrett
    Real Estate Investor · Palm Beach County, FL · Member since 2017 · 3k+ posts · 2k+ votes
    7y

    You already know that other 5plex's are taking up to a year to sell so I wouldn't be too concerned after only 2 months.

    6Reply
  • Account Closed
    Rental Property Investor · Central, FL · Member since 2016 · 950 posts · 821 votes
    7y

    I just look at 5-25 unit buildings and this one doesn’t pencil out as a investment.  Too expensive for the price, cap rates mean nothing when it comes to getting a loan. The DCSR would be way too low.  

    So your buyer pool is a cash buyer.  That’s it.  So when someone stumbles upon your property and wants to make a 5% rent on their money they will call you.  You need to market to overseas investors.  

    5Reply
  • Joe SplitrockPro Member
    Moderator
    Rental Property Investor · Sioux Falls, SD · Member since 2015 · 9k+ posts · 18k+ votes
    7y

    @Brad Hammond a couple things jumped out at me looking at the photos. The bright blue doors are ugly in my opinion. A darker grey would be more tasteful. 

    It looks like the units have had some updates in floors, paint, counter tops and bathrooms which is all good. What stuck out to me was the low grade appliances. White stoves with no window are the cheapest possible stove you can buy. It just comes off bad, given the 55% premium over two years ago. You could buy black appliances or even stainless and it would cost you under $5K to update the other four units. 

    I am not saying people buy only on appearance, but it does create an impression of the property and how it has been updated/cared for.

    10Reply
  • Dan Rowley
    Investor · Cary, NC · Member since 2012 · 214 posts · 194 votes
    7y

    @Brad Hammond

    If your intent was to sell you may have worked against yourself by adding the 5th unit. The Buyer pool for fourplex would stand to be much bigger as it can be financed with conventional. Commercial financing would require low LTV on that cap rate as the dscr is low.

    4Reply
  • Lee Bell
    Real Estate Appraiser · Isabella lake, CA · Member since 2018 · 628 posts · 491 votes
    7y

    I wonder if you could combine the 2 smallest units into 1 and have 4 units again.

    4Reply
  • Account Closed
    Rental Property Investor · Portland, ME · Member since 2019 · 1 post · 1 vote
    7y

    @Russell Brazil I second this. If he converts one of the units into a ADU, then it would leave the option to market this as an owner-occupied building with a "landlord's unit," with a linked ADU perfect for STRs such as AIRBNB.

    1Reply
  • Syed H.
    Developer · NY/NJ/PA · Member since 2018 · 758 posts · 935 votes
    7y

    Nothing wrong with making it a 5 unit. I’d bet 4 units still sell for less. 

    Your price is just too high.

    1Reply
  • Michael Norris
    Specialist · Strongsville, OH · Member since 2016 · 303 posts · 217 votes
    7y

    @Brad Hammond

    Two reasons: Price & Location

    It looks like you are in the glide path of the airport, with a 4 lane road in the back yard, and train tracks across from the 4 lane rd.

    Can you protest the property taxes to help on the cap rate?

    If it’s not selling - cut that price.

    Hook up with a REIA and see if any players in there can package your property with others to some foreign investors maybe?

    4Reply
  • Victor S.
    WorldWide · Member since 2016 · 1k+ posts · 1k+ votes
    7y

    you have 2 duplexes near yours that have been sitting on the market for quite a bit longer and are quite a bit cheaper per sq.ft.:

    https://www.redfin.com/OR/Port...

    https://www.redfin.com/OR/Port...

    Like everyone else had mentioned, it's definitely your price. Doesn't help that there are not really any comps for the past year around that particular area. Some triplexes sold to the West, but not sure how comparable that area is. 

    2Reply
  • Dennis M.
    Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
    7y

    Stop talking about cap rates and justifying value with it . Look Your marketing to investors bro ...and we are all investors on here ... and we all agree your price is just too high so what are you going to do about it and what will you do in two months when your still sitting on it ?

    4Reply
  • Account Closed
    Rental Property Investor · Brooke Park Drive · Member since 2018 · 1k+ posts · 2k+ votes
    7y

    Bulldoze build the max your zoning will allow, 21 units?

    2Reply
  • Haseeb M.
    Real Estate Agent · Hoffman Estates, IL · Member since 2017 · 90 posts · 68 votes
    7y

    @Brad Hammond

    It is almost always the price (and exposure).

    With it being on the web, exposure is probably not an issue.

    I would find a local investor freind and have him provide an honest opinion.

    1Reply
  • Gary L Wallman
    Rental Property Investor · Beavercreek OH · Member since 2018 · 422 posts · 970 votes
    7y
    Originally posted by @Joe Splitrock:

    @Brad Hammond a couple things jumped out at me looking at the photos. The bright blue doors are ugly in my opinion. A darker grey would be more tasteful. 

    It looks like the units have had some updates in floors, paint, counter tops and bathrooms which is all good. What stuck out to me was the low grade appliances. White stoves with no window are the cheapest possible stove you can buy. It just comes off bad, given the 55% premium over two years ago. You could buy black appliances or even stainless and it would cost you under $5K to update the other four units. 

    I am not saying people buy only on appearance, but it does create an impression of the property and how it has been updated/cared for.

     I personally like the blue doors. I just think the price is completely nuts.

    2Reply
  • Dave Song
    Member since 2019 · 1 post · 0 votes
    7y
    Lots of great comments here! Definitely either make the price or terms more attractive (like seller carry) or add value in some way.
    0Reply
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