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.
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?
Rental Property Investor · San Diego, CA · Member since 2017 · 439 posts · 578 votes
7y
You cut your potential buyer market way down with that 5th unit. I would guess that most people looking at 5+ units, due to the loan situation, have done their research and are pretty savvy and they quickly realize that this doesn’t pencil out.... you can always fix that with a drop in the price....
Financial Advisor · CA · Member since 2012 · 128 posts · 76 votes
7y
Federal lenders lend on buildings with 1-4 units. Once you get to five units you need a commercial loan. Realtors want to sell properties, not wait for loans to close.
Rental Property Investor · Member since 2017 · 84 posts · 41 votes
7y
@Brad Hammond. Listing might be “stale”. Change the wording in the listing to address why it has been on the market for a while. The hope being the problem was not because a sink hole in the foundation.
Real Estate Agent · Portland, OR · Member since 2016 · 1k+ posts · 605 votes
7y
Thanks for the input everyone, lots of great ideas. Sounds like I need to lower the price. I'll lower it by $75k and see how it goes. Thanks for all the insight.
Thanks for the input everyone, lots of great ideas. Sounds like I need to lower the price. I'll lower it by $75k and see how it goes. Thanks for all the insight.
My advice, I would take the listing down for a couple weeks then put it back up at the new price, so it is a new listing versus a price drop. I would also consider replacing appliances, so rather than drop $75K, drop it $70K and put $5K into appliances. Then take new photos and advertise with all new appliances. Like mentioned you currently have the lowest grade appliances possible which indicates this is a low end property and it is selling at a high end price.
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.
Took the words right out of my mouth!! That's typically why. Also, you have to know your target market. Who are you selling to? Possibly a cash buyer that is just starting out investing that wants to dip their toes in the sand. Once you figure out who your target market is focus your marketing efforts on your target market.
Thanks for the input everyone, lots of great ideas. Sounds like I need to lower the price. I'll lower it by $75k and see how it goes. Thanks for all the insight.
Well, that will be a good step, but I need to throw this in here ...
On a 5 unit, the price is not set by you. The price is set by the numbers.
You know the formula for Cap. Rate, right? NOI divided by the asking price. If that doesn't come out to the area Cap rate, the numbers are off.
You should have determined your asking price by rearranging that formula to solve for the asking price. Using your asking price of $897,000 and a Cap. Rate of 5%, your monthly NOI should be $3737.50, if I did that right. If it's not, your price may be out of line.
Also, the mix of units is a bit bizarre ... I'm guessing that the studio is the "5th" unit. Does it REALLY have an entrance at the BACK of the building? (Looks like only one blue door back there.)
So, I'd go with those who say convert it back to 4 2-bedroom units and rework the numbers. The numbers will still need to make sense, even if a lender doesn't use them - an (educated) investor (potential buyer) will.
Just my initial impression ... it looks like a road-side motel. Just saying ...
Have you considered leasing it up, THEN selling? A cash-flowing property might sell faster than one with cash flow potential but no tenants.
Rental Property Investor · San Diego, CA · Member since 2013 · 79 posts · 25 votes
7y
@Brad Hammond like others mentioned. I’d consider combining two units and making it a 4-plex with option to turn back into a 5 if the buyer desires. I think with it being a 5, your buyers market is just so small. Everyone wanting to house hack or get started isn’t a potential buyer. Just something to consider if you can’t sell and need to move it.
Rental Property Investor · Montclair, NJ · Member since 2016 · 9 posts · 5 votes
7y
@Brad Hammond Hi Brad. The problem is as a 5 plex this isn’t going to really attract the institutional investor that would be fine paying a market cap at 5.5%. This is the type of property that needs to attract smaller investors like myself. In this case I wouldn’t even entertain a property that isn’t 8%-10% despite what the market is dictating. Cash flow is much more important to smaller investors than institutional. In contrast. If this property was a 40 unit at 5.5% you would have little problem selling.
Specialist · Tampa, FL · Member since 2012 · 933 posts · 492 votes
7y
@Brad Hammond if it has strong cash flow why sell? Hold onto it. Then you have two options as a liquidation event. 1. Refi and pull the equity out. Rates are phenomenal right now. 2. 1031 exchange into something bigger.
Rental Property Investor · New York City · Member since 2019 · 703 posts · 538 votes
7y
With 5 units it's a commercial property.IMO it would be much easier to sell if it were a quad. 1-4 unit property financing is a residential loan. The lending pool is much larger for residential than commercial properties.
I mean if you are really serious out crushing Real Estate Investing I would go for the guac and all the other toppings. Its a common rookie mistake to only put out tacos but its better than no tacos and an unsold 5 plex. #goingaboveandbeyond #howbaddoyouwantit
I mean if you are really serious out crushing Real Estate Investing I would go for the guac and all the other toppings. Its a common rookie mistake to only put out tacos but its better than no tacos and an unsold 5 plex. #goingaboveandbeyond #howbaddoyouwantit
Washington, DC Mortgage Lender/Broker · Member since 2016 · 4k+ posts · 2k+ votes
7y
@Brad Hammond
Your pool of applicants and the ensuing mortgage is much easier and cheaper to get as a 4 unit vs 5. To keep it, kep it as a 5 unit for cash flow. To sell it, make it a 4 unit.