All Forum Posts by: Peter Nikic

If the numbers still work buy it, 8% increase YoY is not high.   If you want to negotiate the best tactic is to walk from the deal and wait for his return and then low ball him, and set your original price as the ceiling.   Good luck

If you think it's too high, counter him at the price you're willing to pay where the deal makes sense for you

You're focused on the wrong data in my opinion. What did or didn't happen last year, whether your actions or the seller's are irrelevant. If he didn't raise rents, didn't invest in capital improvements and didn't make repairs but the market appreciation went up 20% then he should sell for the extra value that he is due by virtue of just waiting and allowing market forces to increase his value. He is also looking at this incorrectly by saying it went up 8% for CPI...that's irrelevant to the value as well. What is relevant is the current market value based on the recent comps or NOI, that is the benchmark for negotiating and tells you this is a good deal or not. If rents are low...even 50% low...who cares if you are achieving a sufficient discount to do the work of raising the rents then buy it.

Don't get hung up on not paying XXX because rents are low, what amount of return do you need to raise rents and how difficult will that be? If you could spend 20 hours per unit and raise rent a net $200/mo, that's an annualized $120/hr is that worth it? If in addition that allows you to capture $10K in value per unit or annualized $500/hr of time invested is that worth it? For me the answer is different if this is a duplex vs. a 10-plex, but my point is let go of the past deal and analyzing how you got here and instead evaluate the property you are looking at today. 

Obviously the tone of this deal has changed. Maybe the seller has cold feet but likes you just enough to get this property sold. In my opinion the seller needs to justify the 8% increase in price. Inflation sucks... but what else changed in 12 months? Sounds like a ploy to get more money out of you. Hopefully they split the difference or you find another way to give both parties a win. That's what fair negotiation is all about. 

@Peter Nikic

Seller can do what they want as your previous contract has nothing to do to current situation. Run the numbers and if it still works, buy it, if not, walk away.

I was wondering the same thing as @Lucia Rushton  "...if the property hasn't been picked up in the last ( very busy ) year, I would ask why."

@Peter Nikic has he done anything to the property since last year ? Are current rents higher? Is NOI greater ? Part of me says if the property hasn't been picked up in the last ( very busy ) year, I would ask why.

@Peter Nikic

Asking the seller to justify their price is a waste of time in my opinion.

It’s the same asking the buyer to justify their price.  

Either the seller wants to sell or the buyer wants to buy. Trying to convince the other party YOUR price is correct is pointless. Run your numbers, analyze the deal in a way that makes sense to you, make your offer and stand by it.

At the end of the day, it doesn’t matter.

People can use whatever data sets they want, make any analysis they want and arrive at different values.

Does each market have an exact precise cap rate?
Is the cap rate one number or a range of numbers? I submit it’s a range.

Let's say buyer and seller agree the NOI based on T12 is $200,000.

Let’s say the cap rate range for that type of asset in that location, condition, and age is 4% to 4.5%.

At 4% cap, value is $5M.

At 4.5% cap, value is $4.4M.

That’s over a 10% difference.

What’s the right answer?

Does anyone believe there is ANY ONE RIGHT ANSWER?

If one was to get three appraisals on one property, I promise there will be three different values.

@Peter Nikic 8% increase over the past year isn't super unreasonable. I'm not sure what your local market is like but I assume the comps would support that new price. If the numbers work then go for it, doesn't matter what the price was last year.

@Peter Nikic

With no contract, this is a new negotiation.
Doesn’t matter what was said or done a year ago.

If you believe the property doesn’t make sense at a 8% higher value, you shouldn’t buy it.

To present a different perspective……

Based on my experience, multifamily values have increased by way more than 8% over the past year in most locations.

So if it was a good buy last year, I suspect it may still be a good buy at 8% more even with higher interest rates.

Something to consider:

Is the current rent roll higher or lower than it was a year ago?

I suspect it should be higher.

Good luck…