First time post. I'm a newby to BP and I feel like i'm learning a lot but I have a bunch a few questions. To start off, I was trying to get used to analyzing deals and looking at what brokers send when they have a multi-family building for sale. The deal was for a 19 unit property for $60,000 a unit for about 1.2 Million. How do they come up with the $60,000 a unit? Is it based on rent? SF?
Also, when they broke up all the numbers for the deal, they broke it down for what the apartments COULD rent for and not what they are ACTUALLY renting for (was about $10,000 less at the end of the year). When looking to purchase a deal, am I purchasing it for what it WILL be or what it is now?
Real Estate Broker · Northern California · Member since 2018 · 54 posts · 27 votes
8y
The price per unit simply allows you to compare it to other nearby sold properties. You can check what the comparable price is that way and it will help determine whether the asking price is reasonable.
You want to pay based on what the complex is making now, NOT on what it could be making. Keep in mind that sometimes there are properties with rents much lower than market that could drastically affect the property value if they were increased. First you would need to make sure you know what the rents should be. Then you need to know if there is a limit to how much rents can be increased in your area. Last you need to decide on how much you feel comfortable raising those rents. It's easy to say you should raise everyone's rent a large amount, but that can be a tough thing to do to families and you would need to take into account how many tenants might leave with such a sudden increase. It's best to be conservative when thinking of prospective numbers.
Real Estate Broker · Northern California · Member since 2018 · 54 posts · 27 votes
8y
Bennett,
The per unit price is determined by dividing the number of units into the purchase price. $1.2M divided by $60,000 is 20, so I am guessing this is a 20 unit complex.
You want to look at what the complex is making now. Check your market to see if what they are suggesting it will make is legit. A lot of agents will be pretty aggressive in their proforma (projection of what they say a property could make), and the numbers may not be realistic.
So they come up with the Total amount for the property and then divide that up into how many units there are. So how do they come up with how much the property should be sold for? Why should I care how much the price per unit is if it is only determined by how much they want from the building?
Even if they say that the apartments COULD make that amount I should pay for that? Maybe the rents are locked in for the next year or two which wouldn't allow me increase them anyway. Does it make sense to pay for the POSSIBLE income negotiate somewhere in the middle?
Real Estate Broker · Northern California · Member since 2018 · 54 posts · 27 votes
8y
The price per unit simply allows you to compare it to other nearby sold properties. You can check what the comparable price is that way and it will help determine whether the asking price is reasonable.
You want to pay based on what the complex is making now, NOT on what it could be making. Keep in mind that sometimes there are properties with rents much lower than market that could drastically affect the property value if they were increased. First you would need to make sure you know what the rents should be. Then you need to know if there is a limit to how much rents can be increased in your area. Last you need to decide on how much you feel comfortable raising those rents. It's easy to say you should raise everyone's rent a large amount, but that can be a tough thing to do to families and you would need to take into account how many tenants might leave with such a sudden increase. It's best to be conservative when thinking of prospective numbers.