How to calculate the value of a real estate portfolio for selling purposes

Question

Hello All,

I'm curious to know if any of you have sold a large portfolio of residential rental properties and what formula you used to calculate the value and selling price?

Looking forward to your feedback.

Robert Leonard · Answer

@Bob Green I haven't sold any large portfolios of properties, but I have looked at/analyzed a few to consider for purchase.  I used the basic income approach used for multifamily as my formula for valuation.  The tall order for me was the due diligence necessary to determine the condition of the properties and knowing the locations well enough to know when the income approach to value was skewed by the character of the neighborhoods.

Other buyers I talked with about the process use automated valuation models (AVM) to guage value, but I found those to be way too inaccurate.  I buy and hold, but I always keep the door open for plan B, quick sale if necessary without taking a loss.  That means I always consider each property on it's own - a) will it cashflow positive and b) if I buy it this morning at this price, can I sell it this afternoon without taking a loss?  That's pretty conservative, but it works for me.

The pools I looked at had too many properties that wouldn't pass both tests to make them worth the effort to complete the due diligence.  I'm only talking about the valuation part of an existing portfolio deal, but the other huge x factor is property management.  I hope that helps in some way.