How Much Value Does Tenant Add To Sale Price? Beach View Also?

25 Replies

hello, have never posted on this particular part of bigger pockets but I have a rental condo in miami and would like to list it for sale. It is in the absolute best neighborhood on the beach in south of fifth and an incredible unit. Its the only 1 bedroom on the top floor in a building where everything is trading for $625/sq ft give or take. There are only 3 units on the top floor with an ocean view and mine is the only 1 bedroom. What is the premium for a view and being on the top floor, haven't spoken with a realtor regarding this yet but would like to be informed before I discuss with one. Basically the only 1 bedroom in the whole building with an ocean view bc the floors below are all blocked by building in front, I have unobstructed ocean views.

Second question is I have a tenant currently renting it paying $3500/mo and been there 2 years, and would like to stay. If I want to sell it, would it add value if I renew his lease or would most buyers like the condo for themselves and no be interested. The man is asking me for a 2-3 year lease bc he would like to settle down for 2-3 years and know he wont have to move. The maintenance fees on the unit are $690/mo and the property taxes are $500/mo. I know the cap rates are not so high in miami beach but the condos appreciate well out here.

Anyways just curious if I should renew his lease when it expires december 1 or renew it bc I would like to sell and would like it to be most marketable, just not sure whats better. Id imagine if one is interested in investing having a 36 month lease at $3500/mo is great with probably 10% annual maintenance fee increases as the only extra cost coming from building. Would appreciate any suggestions regarding pricing with the unique view I mentioned as well as what should be done with tenant, and if I retain tenant and basically hand over $100,000+ in earnings what does that add value wise to final sale price since there is no empty months and such a long standing contract with a good tenant who I have 2 months deposit from as well.

Thank you

$570-640 is the range per sq ft all the other 1 bedrooms in this particular building are selling for. The building is the cheapest in the neighborhood for full service ie valet,pool,gym etc. The other similar buildings in the 5 street neighborhood are obviously much nicer but trade $1200-2000/sq ft. So its already cheap bc its not oceanfront but an inside building as is but right in the middle of all the best restaurants,bars,etc.

Sounds like you made a great investment.Oceanview is a big plus I would not give out a long term lease but rather have your tenants on a month to month since your goal is to sell.

I wish I could do month to month but building requirement is 6 months minimum and more than that, the guy is a good guy, has a good job and is a great tenant, if the condo doesn't sell it would be nice to keep him, he's paying easily $500 more than any other 1 bedroom per month in the building and it would cost me alot to get another tenant in between lost rent and commissions. Most other 1 bedroom in building rent for $2800-3000/mo he pays more bc of the view. Im scared to let him go but would like to sell the apartment now even though its headache free because I would like the money for a different project. Miami is a little slow now so I worry letting him go just to help sell it and it sits for a few months or doesn't sell. I just wanted to see if perhaps a long term deal added value of any sorts, do you believe it does or does it hurt it? Never had any issues at all with tenant just have a commercial opportunity now and would like to sell the vacation condo and invest here. 

The fact is a long term lease can hurt the sale. Many investors like to take possession empty or those that want to buy the unit for personal use would want to move in right away.I would talk to an agent to get estimate of how long these units take to sell.Why dont you list it now if it doesnt sell offer a six month lease 

In terms of what the apartment is doing, I have a 30 year mortgage at 4.5% and mortgage is $1300/mo give or take for $241,000 left with maintenance and everything I make $1000/mo which all goes back into the property. I have $300k of equity give or take in the property but I've never looked into a HELOC for an investment property, is that even an option? I figured only for primary residence. I mean he's a wonderful tenant is there a way to keep him paying $3500/mo and I sign him to a 3 year contract while cashing out the equity? That would be ideal, I just want to see what options exist before discussing with banker.

Thanks steven, miami is a weird beast, some units sit for 6 months to a year bc its a vacation property for most, most aren't eager sellers. I plan on discussing with a realtor soon I just wanted to ask around about how to value it before going in sounding uneducated. I wasn't really a big investor in the area or anything, I dont even live there, but bought the unit from a close friend of ours in town here who needed money and a quick sale so I helped out and I paid $20,000 or so below what the appraisal came in at last year when I was buying it. I made a good deal bc I paid just a tick under $500,000 and a few with no view, same size and lower floors sold for $530,000+ this year. Ive just never invested in a condo before so Im not sure how much the top floor in a 8 story building and being the only one with a clear ocean view would sell for vs a same size one with no view that sold for say $530,000.

I hear what your saying you have a great tenant plus s1000 month cash flow is great I would talk to a lender  to refinace  and pull out equity for other investments you can easily pull out another $100k and still have postive flow. I would make sure you can make additonal income on the equity before pulling the trigger,then you can keep that wonderful tenant

Thanks for the advice, do you have any insights on the value added by the view? Im going to begin searching for a realtor in the area tomorrow, as I mentioned it was bought from a close friend so I don't even have a realtor in the area to call and ask questions to! I signed up on this forum for commercial property purposes but saw this area and decided to ask.

There are plenty of Miami realtors  on here for advice, having never viewed the property I would go with your estimate of $20k i still love that $3500 per month from your perfect tenant 

A Buyer would probably be laughing if they could get that view for just $20k more than without it.

My instinct suggests it should be closer to 20% more (after all, your additional rent is in that order)!

[Oh, I don't mean 20% more than $20k - I mean 20% (or maybe more) higher than no-view]...

My opinion is based entirely on the property value, type, location and mostly the likely buyer pool.

First the rent is too low for a property worth $500K regardless of what you believe is the cash flow. Any investor looking to purchase would not invest in a property of that value with rent at $3500. Ideally this property will be purchased by someone wishing to live in it which means you will turn off about 70% of your buyer pool if you have a tenant in place with a lease.

Additionally with $300K in equity valued at 10% it is costing you $2500/month to warrant having the equity sitting dead in the property. That makes your condo a highly negative cash flow unit.

Not being a experienced investor you are valuing the property entirely wrong as a rental. Unfortunately this is very common for novice investors. Pulling the money out with a HELOC would be better but it does not change the fact that this is a poor rental property.

Personally I would put the tenant on M2M at the end of his lease and inform him you will be listing the property for sale. Any potential buyer can then decide if they want you to terminate him before closing or keep him. I would never put him on a term lease as it could turn off far too many buyers. Your tenant will have two options either buy the place himself or give notice to move.

Greg I know the rent is low but Miami beach is like this, there is no economy and condos that are $2m rent for $6000/mo and break even bc there are so many. Most people buy in Miami and rents are very cheap bc there is too many condos on the other hand the upside is amazing, some condos if you buy right you can turn around and make 30-50% in a year. It's a market unlike anything you've seen. Anyways thank you all for the advice so mostly get rid of the tenant if I wish to sell and then minimum 20% over the ones with same floor plan and no views selling for $530k? 

also as someone else mentioned, similar floorplan units without a view sell for $480,000-$520,000 and rent for $2,500-$2,800/mo from looking at past closings. This one is leased now for $3,500 a pretty substantial increase. I know its crazy bc I own some rentals here in texas I paid $40,000 for that get $800/mo but thats how it is out there, believe me Id love to get $5,000+ a month but the market just is not there.

One tenant I would say ZERO, 

Multiple tenants in a complex over 6 units making income huge.

really? 0? Because other units sit in this building for a few months before getting rented, its not that easy to find a renter in miami beach. If someone owned it they could lose money for a few months vs getting a tenant paying the highest rent of any 1 bedroom by $500 + that same tenant would like to iff possible sign a multi year lease right now just so he can settle down and be headache free. I asked if he would like to purchase and said he would love to but does not have the downpayment that would be needed. It seems like a multiyear lease of a tenant paying the highest rent should be worth something extra.

In my opinion trying to"SELL" a unit that is occupied is tough. hard to show without notice, tenants may not be very happy knowing they are getting new landlord / owner.

I think you are limiting your potential market and doing this your chances of staying on the market will increase. I guess it's hard to tell how bad you need, or want to sell. 

Maximize your market to sell, that's the name of the game. 

Month to month lease at this point is best, and and you'll limit your objections to almost any buyer.

It's your risk, More people are coming south this time of year, so now is the time to market..

You are coming up on season and wouldn't limit yourself to just investors. Can you let the old lease expire to mtm? If not I would include a buyout clause in the lease to get the tenant out if the new owners want to move in immediately.

I would bump him to $4k on a 2 year lease. I think he's getting a deal right now. You are comparing the rent price to non-ocean view. That's apples and oranges. Suggest $4k a month for a 2 year lease and then sit back and enjoy the ride!  Then sell in a couple years.

I wish I could but building requires 6 month leases at a minimum. The thing is he is currently paying the same rent as 2 bedrooms without a view in the building that sell for $750k. There's 200 units in the mid rise and only 3 have a water view bc they're on the top floor and miss the building in front of us. It's whole city block but 3 are on the front side of the first tower that's it. I can ask $4k but that would be $1000/mo more than non view and he's already paying $500 extra I just don't know it's value I suppose. Anyways in terms of addition to value what does a view like that add? Someone said 20% is that about right?

I guess my question also is in residential do cap rates not matter like commercial i.e. A 2 bedroom is $750,000 and is 1100 sq ft vs 850 sq ft but the 1 bedroom rents for $3500 while the 2 bedroom gets $3500 as well? Because one unit just sold for $715k and was just rented for $3300 meanwhile no 1 bedroom has topped $530k

Why do you keep beating yourself up You only bought the unit to do a favor for a friend .You have already made $1200 per year plus you enjoyed tax benefits and appreciation It seems if you sell you going to make $75000 or so I think the real problem is that you do not want to let go of the income because of the great tenant . The only one who can answer your ocean view question is a realtor who knows the market. Hire a realtor after several interviews list the property keep the tenant in there until it is sold and be happy about your situation I think the expression is you can t have your cake and eat it too

thank you, no I'm fine selling bc as I said I need the cash for a commercial project here, I just want to make sure I don't undervalue it based off the other comps none of which have a view that's why I asked in reference to a recently rented 2 bedroom that got less rent than I'm currently getting but sold for $200,000 more than the most recent 1 bedroom comp

Only commercial, minimum multi plex, are valued by cap rate. Condos and other SFHs, just because they are rentals, are primarily personal homes and are price driven entirely by the home market. 

No one on here can place a value on your property, only a experienced local real estate agent or appraiser can do that.

As far as your rental market is concerned negative cash flow is still negative cash flow even if every investor in the state accepts it as being OK. You can polish a turd all you want and it will always be a turd. If speculation on appreciation is the game in your area so be it but you are still losing money every month on your condo as a rental.

I would sell and make twice the income you are receiving in a heart beat, and from what you say so could you so what exactly is the point you are trying to make.

Your question was how much value does Tenant Add.......... NEGATIVE value in your case.

@Tushar Pati Your initial question was what to do with the tenant. I vote with others and say month to month lease. You do not want to tie up the property with a long term lease that will deter buyers. The next question is what to do with the property. Generally speaking expensive rental property makes for poor rental property as the rent to value ratio just does not work. As prices rise, rents do not rise proportionately also. My conclusion is you should sell this unit and invest in units that make more sense as rental property. Time to get a knowledgeable realtor and get rid of this unit.

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here