Dallas Fort Worth Multi-Family Valuation Expierment

4 Replies

The purpose of this post is to see the difference in valuations from one investor to another. My thoughts on the DFW MLS listed properties is that a majority of the sellers are very unrealistic with list price and are only being fed this number by an inexperienced broker/agent. This is an MLS listed property so everything is out in the open. It's actually two separate listings and each is a four-plex. I will provide the numbers and details of the listing but you are welcome to view it as well. The exact location of this deal is Irving, Texas.

List price $289,000/building ($578,00 combined)

MLS # 13131613 & 13131606

Seller is not willing to divide properties up. See the following specs:

2 Bed/1 Bath

Rent/unit: $650 (well priced for area)

Units: 8

Taxes/Building: $3770 as of 2013 (City of Irving tax rate 2.69% of assessed value)

Given Expenses: $1,150/building in Insurance, $50.00/building in lawn care

Tenant pays all utilities (separately metered)

My total valuation is $286,000. I arrived at this number with estimated expenses of 50.5% (just a coincidence from the 50% rule), and Commercial financing with 25% down.

I know everyone's financing is different so try not to hammer me on that. A simple reply with your purchase price and a brief summary of how you got there but summary not required.

Ready, Set, Evaluate.

@Logan Hassinger

Revenue:

Scheduled rent:   $5200/mth     62400/year

Vacancy:              $520/mth       6240/year

Gross revenue:     4680/mth       56160/year

Expenses:

Property Tax:     628.33/mth     7540/year

Insurance:          191.67/mth     2300/year

Lawn care:          100/mth         1200/year (was your $50/bldg a monthly figure?)

Maintenance:     468/mth          5616/year

Property Mgmt:  468/mth          5616/year

Water/Sewer:      240/mth         2880/year  {this figure was missing in your OP}

Electricity:           100/mth          1200/year {there will undoubtedly be house meters}

Gas:                    ??/mth            ???/year (laundry with a gas water heater or dryer?)


Total:                  2196/mth         26352/year


NOI: 2484/mth 29808/year (53.1%)


It is most probable the utility numbers (water/sewer, electricity, gas) are underestimated.   

From the remaining 46.9% you will need to make debt service, set aside your CAPEx reserve and pay income taxes.


Did you factor in pm and maintenance/repairs? What about water/sewer? I think your estimate of 50% of income for expenses is high if all utilities are separately metered. I came up with a quick value of about $365K for the two figuring 11.5% cap. I got to about 34% of income for expenses. I estimated $1000/yr each for water/sewer, 5% maint/rep., 8% pm. If you plug in a vacancy factor of around 8% your value comes down a little more but I still dont see getting above 40% expense ratio. The owner seems to be way off but your valuation seems off too unless Im missing some market specific data like a real low cap rate. What are other 4-8 units selling for on average per unit? 

@Roy N. @Rob Beland

The lawn care of $50/building is a monthly figure so I have a total of $100/month and $1200/annual for all 8 units. Water/Sewer/Trash is paid by tenant and is separately metered. The landlord would never see this bill. There is no gas for these units. That is pretty standard in the DFW market. Cap rates in this area, for this type building offering these amneities is 7-9%. 

My figures are 5% vacancy, 5% maintenance, 10% capex and 12% PM. 

Honestly, CapEx is not used when I'm obtaining "my" purchase price. I have minimum requirements for COC/per door and minimum requirements for IRR. Each minimum requirement, whether it's COC or IRR, also has a different valuation based on different financing terms (ie 100% financing with private money, or typical commercial financing with 25% and anything in between).

Now as far as CapEx goes, I truly don't care what other investors are willing to except. I also realize this is going to greatly reduce the number of deals I would be awarded, being that my valuation is typically much less than what the seller has been told their building is worth by a broker. Don't get me wrong I'm always willing to negotiate, I just feel that my market is flooded with inexperienced buyers and sellers.

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