8plex for sale at 150k but appraised at 88k

Member since 2019 · 4 posts · 0 votes

I am looking at an 8 plex as my first rental property. it was built in 1987 and comes with renters whom have been there anywhere from 2-6 years. It cash flows 100 each unit coming out to 800/ month. The seller has offered to be “the bank” and borrow from them with a 5% apr and requires zero money down. The appraised value of the property and land only comes to 88k and the seller is asking 150k. Is that normal for rental sellers to ask for so much above the appraisal value?

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Ali Boone

Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes

An 8plex for $150k? Where is that? What are the general rent ranges these apartments get?

When you go mega cheap, and therefore mega cheap rents, you're going to be taking on a whole slew of extra headaches that you need to be prepped for. There's a reason the caps are so much higher on low-end properties...

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Tim Herman
Member since 2018 · 2k+ posts · 1k+ votes
7y
@Seth Hudson what are your numbers. Commercial properties are evaluated by cap rate. Gross rents- vacancy-expenses= net operating income divided by cap rate$100000-$5000vacancy=$95000-$50000(expenses)= $45000NOI. If the cap rate is 8%=$562500 purchase price.
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Seth Hudson
OP
Member since 2019 · 4 posts · 0 votes
7y
@Tim Herman my NOI is valued at 21,558 with a cap rate of 14%. NOI / 0.14 = 153,986
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Jay HinrichsBusiness Member
Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
7y
Originally posted by @Seth Hudson:

@Tim Herman my NOI is valued at 21,558 with a cap rate of 14%. NOI / 0.14 = 153,986
for low value assets this would be the norm.. these properties price for risk..
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Tim Herman
Member since 2018 · 2k+ posts · 1k+ votes
7y
@Seth Hudson I've had sellers tell me it is a 10 cap but they don't include all there cost like they leave out repairs,vacancy or lawn mowing. Then I ask if will sell me the property at a 10 cap after I deduct these other expenses. So far they have decline. Trust but verify.
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Rob Massopust
Real Estate Broker · Santa Ana CA [South Coast Metro] · Member since 2016 · 459 posts · 202 votes
7y
DCSR is what an appraisal is what the the bank will lend on. Always low. But if you can take over and have positive cash flow work on the property and get cash flow up
Look at cost per sq ft replacement cost.
Where is this. More likely going to go up in value
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Steve Vaughan
Rental Property Investor · East Wenatchee, WA · Member since 2014 · 10k+ posts · 16k+ votes
7y
Assessed value is usually much lower than appraised value. You're talking about the assessed value, right?
Most county assessors try to assess property net of sales expenses. What a seller would actually receive after realtor fees and closing costs.
Still they tend to be 20% low in my area. If your area has a high levy rate, they may assess low to keep the taxes fair. Maybe it hasn't been re-assessed in years. Who knows.
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Seth Hudson
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Member since 2019 · 4 posts · 0 votes
7y
@Tim Herman after subtracting mortgage, 10k for repairs/maintenance, property tax, property insurance, licenses, and everything else you can imagine, I have a cap rate of 14%. Are you saying that a cap rate above 10% is considered decent?
@Steve Vaughan Yes, I was referring to the total assessed value from 2018
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Tim Herman
Member since 2018 · 2k+ posts · 1k+ votes
7y
@Seth Hudson mortgage is not part of the expenses. You will need to see previous years expenses. One year can not give an accurate idea of expenses. A rough idea is gross rents times 50% = expenses over the long term. Your gross rents should be around $43000 to get to a NOI of $21500. $21500-$9660mortgage payment=$11840 free cash flow.
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Dennis M.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
7y
Don’t just shrug this off as a bad deal . Getting 800 a month on 150k is much better than most on here . How was this appraised who did it ??
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Ali Boone
Real Estate Coach · Venice Beach, CA · Member since 2012 · 6k+ posts · 3k+ votes
7y
An 8plex for $150k? Where is that? What are the general rent ranges these apartments get?
When you go mega cheap, and therefore mega cheap rents, you're going to be taking on a whole slew of extra headaches that you need to be prepped for. There's a reason the caps are so much higher on low-end properties...
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Seth Hudson
OP
Member since 2019 · 4 posts · 0 votes
7y
@Dennis M. I’m not sure who the assessor was, I just got that information off beacon.com
@Ali Boone the rent ranges are 550-700 per unit. Thank you for your advice. I will keep that in mind during my walkthrough.
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Dennis M.
Rental Property Investor · Erie, PA · Member since 2018 · 6k+ posts · 9k+ votes
7y
Usually If your only paying 15k-20k a unit it’s perfectly fine to get 5-600 in rent especially if they are separately metered out . This is the price range I do deals In and although it’s c class categories it’s profitable and the numbers usually work out well . I’ll take cashflow over appreciation any day . I never paid my bills with appreciation so far
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Ed B.
Real Estate Investor · Sacramento, CA · Member since 2010 · 292 posts · 103 votes
7y
Never confused "appraised value" by a tax assessor with a value determined by an appraiser based on market value, which would factor in the income stream. Unless you're in weird state like California where the tax assessed value usually mirrors the latest sales price, plus a small adjustment for each succeeding year.
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Ed B.
Real Estate Investor · Sacramento, CA · Member since 2010 · 292 posts · 103 votes
7y
Never confuse "appraised value" by a tax assessor with a value determined by an appraiser based on market value, which would factor in the income stream. Unless you're in weird state like California where the tax assessed value usually mirrors the latest sales price, plus a small adjustment for each succeeding year.
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