Lender · Charlotte, NC · Member since 2015 · 124 posts · 22 votes
My wife and I own a 3 family home in the town of Lancaster, Massachusetts. We got an appraised value last year in November of 320k while we were living in one of the units. We currently rent the 3 units for a total of 3,800 per month average expense is 2,550 including mortgage and taxes, water, heat, and snow removal. These expenses are averaged high to give us a better idea. Our cash flow is average 1,250 monthly,, yearly 15k. We purchased the house at 283,500 back in 2015. The roof is 10years old, boiler is 11 and works efficiently. The house has been renovated through out. Newer windows, carpet, hardwood floors and Laminate flooring, newer cabinets and appliances. Pretty much the house does not need anything to be done for year. It's a total of 2,100sqft with a finished lower level unit with 1,100sqft totaling 3,200 square feet.
How much should would I be able to sell the house for?
It's hard to find a multi family in the town.
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
Walter Correia Assuming your next buyer is going to need financing, the appraisal will be based on comps. So if you want to leverage income production to leverage a better-than-appraised offer they will have to come out of pocket. That said, appraisals usually end up around the sale price (for whatever reason) so it could be a moot issue. Do you think it's worth more than $320K now?
Lender · Charlotte, NC · Member since 2015 · 124 posts · 22 votes
9y
Lets say i put the house on the market for 320k. The buyer needs to come up with 64k as the 20% down payment. The total expense at its highest would be 2400 per month 28,800 per year. Lets assume we use the trailing 12 which is 3,800 monthly or 45,600 per year. The yearly income with a vacancy rate of 5% is 15,960 yearly. The cash on cash return based on 64k would be 24.9% yearly return. I think any investor seeing this return rate would jump on it plus the condition of the house and many other circumstances.
However, we would like to be less generous and raise the price of the house to maximize profits. At the same time when selling the house we need to make sure that the buyer is getting a decent return.
What is the lowest return rate you think a buyer would be comfortable with?
Lender · Charlotte, NC · Member since 2015 · 124 posts · 22 votes
9y
Andrew Johnson thanks for responding. I think the property is worth more than 380k. I've seen other property in the area go for higher and less based on condition and return rate.
It sounds like it's cash flowing well. At $320k sale price, I'd keep it. After realtors and closing costs, you're not going to net much. At 380k, that's a whole different story. I guess the question becomes, can you re invest the profit and get a better return?
Real Estate Investor · Encinitas, CA · Member since 2016 · 3k+ posts · 3k+ votes
9y
@Walter Correia You certainly know your property better than anyone else here on BP. Some of this matters (read: rate of return) on the area. The CoC return thresholds vary widely, just juxtapose Memphis and Manhattan. I really don't know much about Lancaster and how that market looks and what investor expectations are there. Maybe someone local can jump in and add more value. ROI aside there still is the practical matter of the appraisal. If it was appraised at $320K in November and you think it's worth $380K+ now that's a roughly 19% increase in value in 6 months. Put another way, annualized it's a 38% bump. As I've said, I don't know Lancaster from a whole in the ground but I'm guessing it it's appreciating at a 38%/year rate.
So, even if you get someone willing to pay $380K and the appraisal comes back at $320K (again) or $330K their cash-down isn't $76K, it's $76K + $50K = $126K. You could end up having a signed contract with a buyer that wants it but simply doesn't have the cash to close at that point.
I know I'm beating a dead horse here but when you're selling to non-all-cash buyers you can't take financing, the appraised value, etc. out of the equation. Since it's not 5+ units you're not going to get a commercial appraisal that is heavy based on income. It will be on comps. Have you improved the property in the last 6 months so you can walk the (2nd) appraiser through why it's now a $380K property?
Lets say i put the house on the market for 320k. The buyer needs to come up with 64k as the 20% down payment. The total expense at its highest would be 2400 per month 28,800 per year. Lets assume we use the trailing 12 which is 3,800 monthly or 45,600 per year. The yearly income with a vacancy rate of 5% is 15,960 yearly. The cash on cash return based on 64k would be 24.9% yearly return. I think any investor seeing this return rate would jump on it plus the condition of the house and many other circumstances.
However, we would like to be less generous and raise the price of the house to maximize profits. At the same time when selling the house we need to make sure that the buyer is getting a decent return.
What is the lowest return rate you think a buyer would be comfortable with?
It depends on the buyer. Every buyer is different. What if it's a FHA buyer putting down 3.5%, the numbers would look very different.
In regards to appraised value, you can have 3 appraisers evaluate your property, and you have 3 different appraisals.
Ultimately it is up to your motivation to sell. If you need to sell asap, price lower to attract multiple bids. If not, list it for $380K and see if you've any interests. And adjust accordingly.