How to evaluate a large complex in NY- 30 unit + Store

Question

I am looking at a large multifamily in ny. How do you evaluate value? Use comps? I don't see any. I looked at findcompsnow, redfin, zillow. I see a list price for $3,000,000 and I want to know how he arrived at that value.

Giovanni Isaksen · Answer

@Richard Decoste If reading a 200 page book seems monotonous try imagining it with a more exciting title like How To Not Go Broke In Brooklyn On Your First Real Estate Deal.

That may sound harsh but the reality is you are competing against people who spent 200 grand on a real estate MBA and they definitely read more than 200 pages on how to crunch the numbers. Now it doesn't require an Ivy League MBA to do that but somehow you need to acquire the knowledge of how the numbers work on an income property deal, before your deposit goes hard.

You can hire someone with the knowledge to do the due diligence and number crunching (like us) but even then we educate our clients enough to understand and be comfortable with the numbers in their deals because ultimately it's their money on the line.

BTW, these days even single family investors are competing against the real estate MBAs at Blackstone, Colony, Wayne Hughes' outfit and the like who are out there buying up REOs to rent. Everyone has to raise their game to compete.

Good hunting-

Giovanni Isaksen · Answer

@Richard Decoste I would be less concerned with how the seller came up with a price than determining what the property is worth to you as an investor. What are the reasonably projected benefits of the property's cash flow, tax benefits, amortization of debt and appreciation? How much are you willing to pay for those benefits in terms of purchase price, acquisition costs and immediate capital improvements? How much leverage risk are you willing to take on in order to acquire the property?

I highly recommend reading Frank Gallinelli's "What Every Real Estate Investor Needs to Know About Cash Flow... And 36 Other Key Financial Measures"  http://amzn.to/Zv0Zph (on Amazon) to understand how to measure and analyze the financial performance and returns of an income producing property. There are more good books on income property but I would start there.

Because it's a mixed used property with two retail spaces reading and understanding the terms of those existing commercial leases will be critical to determining the value of this property. If you are not experienced negotiating commercial leases I would definitely engage a broker who is to review that portion of the deal.

Good hunting-

Michael Weller · Answer

@Richard Decoste, you apparently see reading material on CRE as less desirable than real time application of the subject matter. As a Novice you may want to consider both. Anyhow, for starters by way of comps, find out what the Cap rate is in a 2 mile radius for  mixed use commercial of similar size.

Find out the current NOI and if the subject property needs an upgrade, multiplying that figure (NOI) by 9 should place you in the neighborhood of where you want to begin considering where your offer should be.Of course you must do due diligence but you could start with this.

Darren Sager · Answer

I agree with @Giovanni Isaksen .  My copy of @Frank Gallinelli 's book arrived last Friday and I'm looking forward to the read.

Jack Rosenfeld · Answer

@Richard Decoste most real estate books are not worth reading, but the one that is @Giovani Isaksen recommending is an important one based on your questions.  There isn't much text, but a lot of examples and explaining the different measures of evaluating real estate value and investment performance.  Definitely consider looking through it as a guide to your real-time evaluations of deals.

Richard Decoste · Answer

Thank You all for your ideas and help. I feel that part of my education is analyzing real-time deals. Reading 200 page books is monotonous, but if I have real properties to analyze I can better remember the formula and algorithms required to find deals.

Laura Lucas · Answer

I took a 5 mo online class with Bob Diamond. Teaching was very well understood. Went to Las Vegas to meet other online students taking same class. Some were investors. Built my clientel and learned a lot.

Richard Decoste · Answer

I mean 30 unit building with 1 convenience store and 1 Optimo store.

Chad Bernstein · Answer

@Richard Decoste

It all depends, when you say large multifamily in Brooklyn what does that mean? How many units and in what part of Brooklyn?

Dennis Tierney · Answer

@Richard Decoste If you don't know how to determine the value of a property you will be fleeced. Educate yourself before you get into making offers on real estate. There are lots of resources on this website and lots of books to read before you jump into the deep end on multifamily.

How to evaluate a large complex in NY- 30 unit + Store

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