Posted by Soapymac on December 15, 1998 at 17:32:07:
is go back to just fixing bicycles. Not the way you described the situation you have. You appear to have a very good handle on it…and it would be a crying shame to waste the amount of brain power that is evident in your post.
I will answer to only a small portion of it and leave the rest ot the others who read this board.
“All the properties I’ve looked at are listed by brokers. How much extra do you think they tack on to arrive at the list price? (You want 100, lets list it for 130, you might get 90).”
The key for a CORRECTLY PRICED property at RETAIL (which is the way most brokers are trained) goes something like this:
- Do a CMA (Comparable Market Analysis) or (“comps”) to find what the marketplace has determined to be the price of similar units. In a multi-unit property on the market that has nothing exactly like it, sometimes you need to find the cost PER LIVING UNIT, then multiply by the number of units in the building.
Another way is to find gross rents, figure and subtract expenses,(which is called your Net Operating Income…NOI for short), THEN subtract your mortgage payment. What you have left is your spendable cash flow.
A third way to figure the selling price is to take your NOI and divide that by the capitalization rate you want to earn. So, if your NOI was $24,000 annually and you wanted a 10% cap rate, the price of the property should be $240,000.
I mention all these because most retail brokers, especially those who only deal in SFR’s, do not know how to correctly price a multi-unit property such that it will attract investors.
You will hear it here time and time again…a property that is correctly priced will not stay on the market long…smart real estate agents/brokers/investors will recognize the value and purchase it.
So what about those units that stay on the market for a long time? Are they incorrectly priced? Could be. How about a stubborn owner who won’t negotiate? Could be that, too. Problems with a property? Possibly.
All this goes back to knowing your market.
And why shackle yourself with a 30% DP as part of your plan to buy a property? Could you not be looking to help the city out by offering to L/O some of their houses? Think about it.
Get your juices flowing. You could be in a position to make a TREMENDOUS cash flow and help the city out at the same time. Do it right…once…and your reputation will precede you when you do other things.