Re: 10 unit apartment with 5 units vacant - Posted by GL - ON
Posted by GL - ON on July 13, 2003 at 08:21:48:
In situations like this I like to ask how long the existing tenants have been in the building. If the answer is , this one 2 years, that one 3 years, the other one 10 years etc. then you know the building is desirable to tenants (or was, LOL) and that the problem is rotten management.
If the tenants have all been there less than 6 months it is a danger flag.
You have to figure out what is going to happen under good management (yours) and work out a value accordingly.Use a vacancy factor of 5% if your experience teaches you that is reasonable.
Now deduct the cost of putting the building in good shape. In fact whatever it cost, double it. You deserve to get paid for your efforts.
Now you have a value. You must buy for less than that.
The seller’s value could be much higher or much lower, because his price is a wild ass guess while yours is based on an objective analysis.
To answer your question, bad management and high vacancy drags down the value dramatically. But this is temporary. Your good management and rehab skill will turn it into a good building full of good tenants in a few months to a year. Then it will be a good building as long as you keep it up.
I assume the building is structurally sound, and in a decent neighborhood.