11 unit apartment asking price $540,000 NOI $34,925 What should my offer be?

In Buying Property - Asked by chris b. - Jun 18, 2009
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Answer(s)

Paul S.
Broker/Agent
Glendora, CA

That will depend on a lot of things. Your question might seem straight forward but there are many factors that would dictate what your offer should be. Keeping in mind the question is very broad, find out what the "going" cap rate is in the area for similar properties. Recent solds should have higher caps than properties that are on the market because the best deals sell first and the overpriced (those with the lower caps) sell after those that are priced "right". Ignoring all other factors, take the NOI divide by the "going" cap rate will equal a sales price. Example: $34,925/.08=$436,562. $34,925/$540,925=6.46% cap. If the going cap rates for similar properties are 6% (like parts of California) then the asking price is a bit of a deal. If however the going cap is 8% the property is grossly overpriced. If you need more insight call me at 800 554-7362 ext. 208 or email me at paulsylvester@remax.net
Paul Sylvester,CCIM

Jun 18, 2009
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Joshua O.
Broker/Agent
Madison Heights, MI

Two important metrics for apartments are Capitalization Rate = NOI / Price and
Cash on Cash Return = positive net annual cash flow (after mortage payments) / your downpayment. For a decent investment, choose cap rates in the 8-9% range and higher if you can. For cash on cash returns, shoot for 8-10% return +. Hope this helps.

Jun 18, 2009
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Mehrdad H.
Broker/Agent
La Jolla, CA

if it is in Calif. then it is good price.

Jun 18, 2009
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Dan C.
Broker/Agent
Venice, FL

That price is in line with my Florida market. I am on the southwwest coast of Florida with the average Cap Rate of 6.4% so this is line. My biggest hurdle in selling
multi family is investor thinking they can get a 10%. Not possible in Florida, unless your buying in college towns.
Dan Christopherson PA
RE/MAX Alliance Group

Jun 19, 2009
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Nick S.
Newburgh, NY

Move to New York and investment props need to be atleast a 9 cap.... Id offer 349,250, making it a 10 cap and see if you can get him down to 400, 425ish

Jun 19, 2009
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Lal A.
Broker/Agent
Long Beach, CA

First theing you need to consider is location. In real estate you have probably heard that first criteria is location, location, and location. Then you need to do a research for recently sold properties in the same area. If not available, consider similar area in other part of the city. Then you need to consider what kind of return on your down payment are you requiring. Are you paying all cash, or leverging by getting a loan. What is the interest on the loan. Having this information, you can figure out the cap rate you want to pay for this property. If the property is in Los Angeles area, you can call me. Lal akatrai, CCIM

Jun 19, 2009
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Anand B.
Broker/Agent
Arlington Heights, IL

You will want to search through similar listings on loopnet and figure out what the average cap rate is for same-type buildings in the area. It doesn't hurt to make your initial offer 100 cap points above the current rates, but be prepared to settle for at market rate in the current economic conditions (getting below market rates is still difficult in commercial transactions, manyseller's can weather the storm and have not lowered prices).

Jun 21, 2009
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Bill M.
Broker/Agent
Torrance, CA

It is so important to state the area etc. Cap rates should be at least equal to the cost of capital or in other words equl to 6-6.5% if you want to make a good cash on cash return. Hope this helps.
Bill Mulkey-310-919-7554

Jun 22, 2009
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