Best way to sell a 8 unit apartment building?

Question

Hi,

We own a 8 unit apartment building in Ohio that we are thinking about possibly selling if the price is right. I am not entirely sure how the market has been headed recently and may not be the best time.

Only reason we are considering it now is because we had a couple long term tenants move out and we will now have a few remodeled units and would be easy to show.

I was going to call several of the larger named real estate agencies in the area and ask for a commercial realtor and go from there.

Curious if there are other areas I should look into? We do not really network with any other local investors.

Thank you

Alecia Loveless · Answer

@Jim P. I just bought an 8 unit apartment building so have a little insight. In my case the building was being so grossly mismanaged that rents were about 1/2 the going market rates and heat was being included in that price. ($500 for a 1/1 when area going rates are closer to $11-1200 for a 1/1). Management was an hour away and had just been letting tenants drop off their rent at the local real estate office when they felt like it sometimes 2-3 months at a time and always late. Repairs and maintenance were non-existent and the tenants were simply being told that unless it was an actual emergency that was why their rents were so low.

If you do have the opportunity to renovate several of the units ahead of listing the property I would highly recommend that. WOW factor. Also I have determined that the low rents in my case cost the selling agent at least $250,000 off his price and commission but he was just too lazy to care.

If your rents are close to market value I wouldn’t raise the remaining tenants rent but would leave that as a value add for the new owners. If you go to rent the renovated units I would raise those rates to current market value to get the most bang for your valuation.

Brandon Goldsmith · Answer

If you want he most amount of eyes, I would list it with an agent who does multifamily. I would make all the necessary updates and then fill it enough so that someone can still get some type of commercial financing. @Jim P.

Jim P. · Answer

Thanks for the information, makes sense. We are in sort of an odd space with it, on one hand we want to move on to some other things and get out of this property but if we remodel these units and place tenants and it doesn't make a ton of sense to sell low or even at all since it's a good property.

Sort of we either sell now or we hold on to it a while.

Brian Cauldwell · Answer

Hi @Jim P.!

Another thing to think about for an 8-unit apartment building is cash flow. If your goal is to sell, you will have more borrowers be approved if the property is showing great cash flow. So, vacancies, and rents below market rent can affect the loan for potential buyers. In the DSCR space, most lenders look at current rents and the trailing 12 months to determine cash flow, so if there are vacancies that could hurt the cash flow, which would lower the loan amount, and less people can buy the property. Especially if the goal is to sell it for as much as possible.