Posted by eric-fl on March 12, 2001 at 11:08:40:
Assuming that you are calculating correctly, and assuming that your assesment of fair market rents are accurate, then there are really only three things you can do:
- Lower the purchase price
- Lower expenses
- Raise rents
Broadly speaking, those are the only three things that can be done to increase your cap rate. If you can’t do any of them, then you can’t buy. Multi-family properties still carry the same caveat that single-family props do: only deal with motivated sellers. You need to find sellers who will sell to you at a low enough price to make the cap rate acceptable. Otherwise, you have to take a look at it, and ask if it is a management problem. Can you lower the expenses? Can you raise the rents? If none of these things can be done, it may be time to move on. One strategy some people use in this arena is to make a full price offer, subject to due diligence. Then, lower the price after the truth comes out, since the sellers pro-forma numbers are fantasy anyway. Otherwise, you can offer a realistic price up front, and negotiate the deal that way.