Crazy prices on 2 and 3 flat buildings in chicago

[Mordy Chaimovitz]

Can someone please explain to me why people are buying 2 flats that rent comps show $4,600 a month in income for 665k+? The income doesn't really cover expenses plus debt service. 

Even if you tell me they are paying cash or very high down payments , shouldn't the price of multifily buildings reflect its NOI/cap rate?

Also, am i imagining it, or is there is no way these buildings will hold onto these values. 

Would you forecast that there will be some big discounts on these in a few years as people realize that they cant afford to hold onto them

thank you!

Mordechai Chaimovitz

[John Warren]

@Mordy Chaimovitz cap rates and NOI are commercial real estate terms, and 1-4 units are not really valued in the same way. Two flats are essentially just houses.... they trade like houses and there is a lot of emotion involved. Most of the buyers are just regular folks looking for a home, so they are not at all thinking about cap rates.

Three and four units properties tend to be slightly more investor facing, but there are still a lot of regular buyers that pick up three and four units as well. This is what I love about this asset class. You can sell these things in an up market and make an absolute killing. I have helped quite a few investors dispose of their 2-4 units this year and they have been cleaning house.