MF worth half of the asking price?

[Diane G.]

I read a couple of really good thread on this topic but can't find them now...Sorry starting a new thread here just so we can continue the discussion..

In the last 2-3 months of looking at MF, I noticed that MF listings ROUTINELY overstate the rent by 20% in addition to showing no vacancy/eviction/turn over etc.... I think you would be lucky if you end up getting 70% of the proforma rent.... On the expenses side, same thing, understatement of expenses.... Adding all things up, I ROUTINELY get to the conclusion that the listing is really worth about half of the asking price...

Now I have to imagine that this is how MF selling/buying always is....So my question is, is it common practice to offer half ish of the asking price? 

[Jason Hirko]

@Diane G. It is standard practice to list the gross potential revenue, which of course does not account for vacancy, turnover, or any expenses. This is a good high-level measurement to let you quickly compare properties by current rent x # of units... For example, a standard 8 plex that is horribly managed by an absentee owner may run expenses at 80% of potential revenue, whereas costs on a 4 plex run very well may only be 40%. If all you got was the NOI, you would assume both of these properties should be priced the same, but that is not how it works. All of these measurements are just pieces to the puzzle. When I buy an MF property, I look at the P/L to see hard costs like property tax, insurance, utilities, etc., but the majority of soft costs or turnover costs are largely irrelevant because how the owner manages the property will be different than how I will, whether that is for the better or for the worse.

And as for the asking price to be double what its worth: 1) Its worth what someone will pay, and 2) make offers, not friends! Don't be scared to offend someone with an offer.