How to Sell a Four-Plex that won't Sell? - Posted by AJ in (WA)

Posted by Joe M. on April 01, 2002 at 19:22:41:

Hello, I am looking in to buying a 4-plex on the outskirts of the Greater Seattle Area to ownere occupy and was researching old post when I came across yours. I was wondering how this property worked out for you and if you had any advice for me?
thanks for your time.
Happy Investing, Joe M>
JFMsea@yahoo.com

How to Sell a Four-Plex that won’t Sell? - Posted by AJ in (WA)

Posted by AJ in (WA) on January 22, 2000 at 13:11:56:

Fellow Investors:

I live in the Seattle area and have a Four-Plex for sale, but I cannot get anyone to bite on it, so I figured I would ask some advice from the folks here on how to get it sold. I’ve had it on the market for 30 days and have had a ton of inquiries on it but no takers. Here are the particulars, and if you want to crticize, don’t be shy, I need true 3rd party observations.

Original asking price $204,950
Reduced to $189,500
(3) 1 bedroom units
(1) 2 bedroom unit
Annual gross income: $21,720
Annual utility expenses: $3,037
Annual net operating income: $17,085
CAP Rate: 9.0%
GRM: 11.5%
Assumable $140,000 FHA first mortgage @ 7.5% fixed (if buyer is willing to occupy one unit and can credit qualify)

Single story building, no associations, central laundry (coin-op), relatively long term tenants (3 years).

Needs some cosmetic work but nothing major.

Here’s my website if you want to see pictures:
http://www.nwlink.com/~andyt/auburn/index.htm

I had one lowball offer of $185,000 after the second day on the market, I countered back at $189,500, and the buyer countered back at $10,000 lower than his original offer, and wanted me to pay 3% of his closing costs, I told him to take a hike. He was one of those “hit and run” buyers.

So, any ideas on what I can do to get this thing sold without losing my shirt? Maybe I should hang onto it for another 2 years then put it back on the market?

Thanks for your feedback…

AJ in WA

Re: How to Sell a Four-Plex that won’t Sell? - Posted by seesaw

Posted by seesaw on January 24, 2000 at 15:38:52:

Couple quick questions. Are you willing to take back a second? When you say the rents are under market, what would you say market rents are? How much do you make from the washer and dryers? How bad is the noise from the railway line running in back of the property? What square footage are the units? How big is the lot? Is there any covered parking? If not, where do they park and how many spots per unit?

Re: How to Sell a Four-Plex that won’t Sell? - Posted by jim rayner

Posted by jim rayner on January 23, 2000 at 21:08:40:

AJ

your site indicates that your rents are below market this would dictate a higher cap rate for the buyer who would have the chore of bringing the rents up to market. if you want to get a better price you should bring you rents up to market for every dollar of rent increase annually you will potentially raise the value of the property 10 dollars. this way you can take advantage of the upside potential and not the buyer.

Re: How to Sell a Four-Plex that won’t Sell? - Posted by phil fernandez

Posted by phil fernandez on January 23, 2000 at 19:50:29:

AJ,

How come you have no property tax figure in there. Aren’t there some property taxes. How about water/ sewer costs and insurance. Also management, vacancy factors and reserves for replacement. All of these are expenses that a buyer has to take into account and this money must come out of the cashflow of the property not out of the buyers pocket.

Even if these expenses were factored in, will anyone jump at a 9% cap. And of course after factoring in the expenses that you didn’t the cap would be much lower than your 9%. Don’t know your area, but we look at caps in the 12% range before we get very excited.

Keep in mind that you don’t set the price of an income producing property. The numbers do.

Thanks for the Feedback Everyone - Posted by AJ in (WA)

Posted by AJ in (WA) on January 23, 2000 at 09:59:11:

I appreciate everyone’s feedback, comments and suggestions, I’ve got a clearer perspective of where I’m at and what my next moves are.

Thank You!

AJ

Overpriced… - Posted by JPiper

Posted by JPiper on January 22, 2000 at 20:09:21:

Let?s refigure your numbers based on some reality.

Gross income is $21,720?or $1810 per month

Expenses (including taxes, insurance, deferred maintenance) are at least $635. I?d probably use a higher number?but let?s use this for illustration.

Net Operating Income $1175.

Now let?s say you find yourself an investor who can put down 10% ($20K)?and finances $180K at 8% for 30 years. This guy has got excellent credit by the way.

Debt service is $1320 per month. In other words, this guy is going to LOSE $145 per month for the privilege of putting $20K in your property! Does this help you to understand your lack of offers.

Now let?s figure it assuming you sell at $180K?with $18K down, financing $162K. This deal basically breaks even?and requires $18K down. Will anyone do it? Good question?.personally, I think most of us have something better to do with $18K.

Maybe you can convince someone that the expenses aren?t $635. Perhaps they?ll believe you when you say your expenses are only $386?.utilities making up $253. But chances are that anyone who?ll believe that story doesn?t have $18K left!

Now let?s look at that elusive owner occupant that Mike M. wants you to find. He?s going to live in the two bedroom?.so I?m going to assume (since you don?t specify the rental for the 2 bed) that your rent drops to about $1300. Let?s say your expenses are now $455 (including taxes and insurance). That means NOI is now $845.

Assuming you do Mike M.?s financing?the payment is $1646. This means your owner occupant is living in a 2 bed apartment, managing 3 one bed?s, and paying $800 for the privilege. I doubt it?.I?d say this isn?t going to happen?but then again, I don?t know your market.

My guess is that you?ve got this property well overpriced?.which would explain the lookers, but few offers. Further, it may be that based on the level of rents that the area isn?t the best either.

From everything I hear Seattle is a hot area. I would think your property would move if you had it reasonably priced. My suggestion would be to reevaluate the comps.

By the way, a property is worth what the comps dictate and buyers are willing to pay?.it?s not going to be worth more because you want it to be?not now?and not in 2 years.

JPiper

Re: How to Sell a Four-Plex that won’t Sell? - Posted by JoeKaiser

Posted by JoeKaiser on January 22, 2000 at 19:53:10:

AJ, the value of an income property is based on the income the property generates, all things being equal.

In this marketplace, we can buy with true 10% cap rates all day long. You’ve calculated 9%, but your costs don’t seem to include management, maintenance and vacancies. Those are real expenses and just because you may have not paid them, you still have to figure them in. I can assure you I’ll have to pay them if I’m owning that thing.

Based on your numbers, and tweaking them a bit to reflect real operating expenses, you’re just too high.

I have a four plex that grosses $29k (4 x $600 a month), tenants pay everything, and I’d love to get $189k.

Joe

INCREASE the price BUT offer Owner financed Flexible terms - Posted by Michael Morrongiello American Note

Posted by Michael Morrongiello American Note on January 22, 2000 at 19:37:36:

Amazing as it may sound - lowering your sales price should be the LAST thing to do when attempting to sell a property. If you have equity and it sounds like you do ( I presume you owe $140K ), then I would advocate attempting to sell this property by offering EASY & Flexible OWNER FINANCING that will lure many more potential buyers out of the marketplace.

Ideally you would like to attract an owner occupant buyer who will occupy one of the units and rent the others out.

Here is possible way to go:

Sales Price $200,000.00 (assuming it will apraise?)
10% Down - 20,000.00
1st lien financed 180,000.00

Possible Terms: $180,000.00 amortized over 360 months @ 10.5% payable $1,646.53 per month,. No ballooon payment or pre payment penalty.

Assuming STRONG credit and employment on the prospective buyer ,You then sell your purchase money 1st lien $180K mortgage for $170,000.00 +/- in CASH. With a less than perfect borrower this pay price may be lower however , These funds coupled with the $20,000.00 buyer down payment would seem to get you where you need to go.

This is what I would recommend you try first by exposing the property to the marketplace with Owner financing rather than lowering your sales price.

If you want to fine tune this program, work on the ad to run, or the terms, go over the procedures, etc. then drop me a line at FelixM1@aol.com

Michael Morrongiello

Re: How to Sell a Four-Plex that won’t Sell? - Posted by chris

Posted by chris on January 22, 2000 at 13:44:55:

AJ-

When you say the mortgage is $140K and is assumable with qualify do you mean it is an assumable-no qualify that they must meet your criteria on before you will allow them to assume? Or are you planning a subject to purchase and want to screen the prospective buyer?

What amount of cash do you need at closing and are you willing to help finance?

How motivated are you to sell and what will you not accept as an offer from a buyer? How far will you come down from your $189,500 target if you get an offer?

-Chris

Re: How to Sell a Four-Plex that won’t Sell? - Posted by Joe M.

Posted by Joe M. on April 01, 2002 at 19:16:54:

Hi , Jim Rayner. I know this is an old post but I hope you don’t mind an inquiry about your response.
Could you please explain further the statement
"for every dollar of rent increase annually you will potentially raise the value of the property 10 dollars"
I don’t quite understand that, and I value your opinion greatly.
Happy Investing, JOE M.

Re: How to Sell a Four-Plex that won’t Sell? - Posted by AJ in (WA)

Posted by AJ in (WA) on January 22, 2000 at 14:10:02:

Chris,

By assumable, I mean that in my loan documents, the lender states that the loan can be assumed if the buyer is willing to occupy and can credit qualify, it is nothing to do with my preferences.

I would prefer to be cashed out because I have other investments opportunities that I want to get into.

What I would accept for a selling price is negotiable, I could come down to around $182,000-$183,000 but no lower, it would not be worth all the time and effort I put into the property, also that assumes not paying a buyers agent any commission. In otherwords if I can find my own private buyer.

I have already come down $15,000, I could come down a total of $20,000 all together but any lower than that and it’s not worth it to me.

I guess if all else fails I’ll take it off the market and hang onto it for another 2 years, then put it back on at $205,000 and get what I believe what I deserve at that time.

Thanks…

AJ