JOE'S CORNER -Commentary on the market and other rants
TOPIC: OVERPRICED INCOME PROPERTY
I am a commercial as well as residential broker. For my commercial practice I work with a select group of income property investors. Each morning I search centris and contact private sellers to find multi-residential income properties (6 to 60 units plus) with specific criteria including a 4.5 or higher capitalization rate, apparent good condition, and prime or up and coming locations.
On average there are 25 to 60 new income properties listed each day from the day before, yet I can only find 3 or 4 not-overpriced, not-underperforming, not money losing propositions.
There are only three reasons for overpriced, underperforming income property of 6 units or more:
- The broker knows not what they do
- The broker is using the property to attract clients for more expensive properties
- The seller does not understand the market and/or wants too much, which means the property sits on the market for a long time.
If a 30 unit income property has an asking price that only generates a 2 or 3.5 cap rate, this is a money losing investment, unless a buyer is searching for a tax write off.
Sellers should have a clear understanding of how to price an income property. If a property of 30 units has an asking price that generates a 5 cap rate or higher, and a visit is only permitted upon a conditional promise to purchase, the property can generate multiple offers and possibly sell for more than the asking. However, a 30 unit income property that generates a 3.5 cap is not interesting to investors and sits on the market until the seller, after much wasted time, reduces the price, or removes the property from the market.
Should you have questions regarding this topic, feel free to contact me anytime.