All Forum Posts by: Sid Naik

Hi,

Wanted to check on how difficult it is to convert multifamily units to TIC in sfo .

Is this a good strategy ? want to get ur opinions on this .  Does anybody here have experience in doing it? 

@Amit M. you are right there will be a handful of building owners who have to sell and those are the ones I want to target . I just got a call from realtor about another building which went into contract and my first question to him was " was it based on currents rents " ? Thats what he confirmed . multifamily properties today are valued on lower rents . in this particular case correction to rents was 20% so I can easily say the NOI and value would have reduced by 25-30% as costs should not change significantly . In some cases the sellers may not feel like selling at lower valuations , it just depends on how urgent the need to sell is .

Buying at pre void valuations and collecting today's rent would be a disaster .

@Lawrence Leung exactly . I do see a stalemate .The property i was looking at is on the market since covid hit & investors have not overpaid for it hence on the market  . the seller is now back to reality looking for valuation based on current rents which is a correction. good luck to investors who will pay pre covid valuations and collect new low rents . 

Even in Santa clara sellers will take a time to get back to reality . I experienced first hand a drop of 20% rent on my condo for rent but the multifamily I was looking at was asking for pre covid rent valuation . hence stalemate for now .

@Lawrence Leung curious about the rent rolls that you say are down by 30% and not in the whole building . Why would this not translate to a decrease in multifamily pricing ? 

Lets take a building whose NOI decreased by 20% from 20,000 to 16000.

Simplicity purpose NOI = 60% of yearly rent

If the cap rate is 3% then price should be 3.8 M .. and of course if the building is desirable then some investor may offer 4 M say .

The same building be in 2019 would be based on 20k rent at 4.8M valuation and some investor may have offered 5M . 

IF rent is down value of multifamily has to be down . That is what I am seeing when I am talking to brokers . I am no expert on sfo infact a newbie in this market . 

So why would a building in soma not be valued at 30% lesser than 2019 when you do see rents have corrected . Of course you need to exclude the rent control units from the calculation and if the building has 90% rent control units then above calc is not valid and you would have to factor in buyouts . 

Now if you are saying rents have not corrected at all then it is a different story .

https://www.cnbc.com/2020/10/0...

@Johnson H. Also the ones that closed in November could have been valued based of rents 4 or 5 months prior when rents had not corrected a lot .

I did check out couple of listings ( 5+ units) in the city last week which are valued based of the current rents not the rents pre covid . In one of the listings I am looking at Rents were 3500 which have now corrected to 2800  .  As per broker(s) I have talked to including the selling broker they are ready to entertain prices with current rents and there are buildings with vacant units for you to come at market rents . 

@Brian Garlington I believe in buying low and selling high . Real estate in the rest of the country ( except NY and SFO) is at a high . Real estate in sfo for multifamily has corrected by 30% . I do believe in the power of cities coming back to life once the pandemic effect is over which could be 2-3-4 years .. hence my interest in sfo .

@Lawrence Leung I am only looking for properties valued on NOI ( 5 + unit ) because that is where i can find reduction in prices as rents have corrected by 20+% . however even if I increase value by renovating it will still depend on my tenant moving out . so key will be to select tenants who you think will not be squatters .

Have a question regarding rent control in San Francisco . A lot of 4-6 unit multifamily units I am looking right now have at least 2 units which are at very low rents . lets say i buy a 6 unit with 2 under rent control and 4 at market rents  . Even the 4 units will be capped for prices increases . so how do i increase the value of the property if the remaining 4 also decide to stay long term . I have to pray they leave sometime in the future for me to increase rents and thereby increase build value ? This does not sound like a great business strategy . Am I missing something ? 

@David Song how are prices up for multifamily which are valued based of income it produces ? 

I have been talking to sfo brokers now and they are pricing the properties based of lower rents . of course rent control makes it difficult to get lower valuation on all  units but there are properties which more than 50% of units vacant .