All Forum Posts by: Travis Reed

 Are your appraisers using cap rates to determine value? 

With the uptick in cap rates, shouldn't everyone be protesting your county tax property appraisals to reflect lower tax values this year?

Here in Texas, my county is really trying to screw me. For my commercial office, they are trying to raise my taxed value from 360k to 880k! I plan to protest the heck out of this!

My method for protesting commercial is to apply the appropriate cap rate to my pro forma NOI for 2023. I am going to attempt to claim a 10% cap rate, against a NOI that incoudes expenses like 10% rent loss, 12% property management, 8% repair budget, 5% capx, and the typical tax, insurance, landscaping, etc. Does this seem reasonable? Anyone with experience on this? I am curious what values they will try to argue. My pro forma with all of these values actually shows the building to be worth $161k haha. In other words, they proposed a 2.5x increase and my counter is to ask for a 50% decrease.

As others have mentioned do not listen to this idiot friend of yours. 1 year to rennovate? 2 years to sell SFHs? You can do some 5 min googling to know that he is full of it.  And wtf is a non city state?? Texas has multiple large cities that are growing... the dfw metroplex is close to populations size as newyork... just not as dense. 

We have a nearby lake that is running out of room. Lots are quite expensive, usually around $200k if you can find them. I am confident that as time progresses, these lake properties will continue to appreciate.

With that said, an interesting property popped up for around $270k. A lake property with a 4 bed 1600 SF manufactured home on it. This seems like a great deal... but yes it is a manufactured home. Im trying to determine what I could charge for rent. There are no active for rent listings around the lake to compare. If this was not on the lake, I think it would get about 1,200/month. Would it be reasonable to estimste 2k/month since it is on the lake with no other available rentals on the lake? Is there some liability issues with renting a lake house I should worry about? The priperty has a pier but not a boat house.

 I bet your right!

I understand your reasoning but my reasoning is that multifamily and commercial are valued based on cap rates and returns. Cap rates are lower than interest rates right now which means commercial and multifamily values will be dropping. 5-6% cap rates will not be sticking around. In other words, investment properties are not going to be offering good returns so values will begin to drop as properties sit. I have already watched commercial property in my area drop their askings prices to raise their advertised cap rates. Multifamily may not be commercial but it is valued the same, based on returns. No one will buy a multifamily property that doesn't have a good projected return, meanwhile SFH values are not driven by cap rates, returns, cash flows, etc. Almost all based on the market, demand, economy, etc. So plenty of people will still be buying those, regardless of their return.

I am operating under the assumption that the listings cap rate is based on the standard Net Operating Income. If I were to pursue the deal I would of course dig in deeper. 

I find 1% here in texas but they tend to be in smaller towns and class C style properties. These will cash flow good but likely not appreciate like the urban areas/outskirts. As others have said, with current interest rates it will be tough unless some property values drop. IN my imagination, multifamily will drop first since they are valued based on cash returns. 

It sounds like I got my answer, it is good business to notify the tenant 60 days prior to the end of the lease so that is what I will do.