figuring out value

[Elisabeth Herrera]

Hello,
so my troubles are that I’m having a hard time figuring out the value to properties. I know the steps we have gone over. I understand to focus on a specific area to have some control. However, I do not understand.
I got the area, now what? a distressed property non owner occupied. Also at least 10 years with that same owner. That distressed property get compared to a similar house that is in great condition. Those good houses in the area set the pace in price. As long as we get the property at least 20% the set values in the area then we’re good? Also preferably more than 20% since it is distressed. In the case that the house is in good condition yet non owner occupied, with that same owner for 10+ years, then still 20% off from the rest of the houses in the neighborhood?
It makes sense typing it out, let me know what I am missing. It takes me a while for some things to make sense. Also how do I know the value in the neighborhood? by recently sold within a time frame?
Thank you for the help!

[Tom]

Hi Eli,

I think you may just want to look at what’s comes on market and monitor it for a bit and see what it sells for.

I hate that it is an election year and with COVID fall out not sure where we stand. I think we all need to get an idea of how our market has changed wherever we are located.

I think what sells in next 2-3 months and for how much will be more relevant Than the last 2-3 months since the USA received so much stimulus.

With stimulus wearing off I think we get a better idea of where we are at overall.

Tom

[Hecmir]

Hey Tom,

What about this:

2 IDENTICAL commercial properties

2000 SF
$30 SF/YR
Similar Expenses
Same block
One is VACANT
And the other has a GROSS rent of $60K/YR

How do you price them?
Is the Vacant building worth less since there’s no income/lease on it?

Thank you!

[Tom]

Good question!

The vacant one could actually be worth more depending on what the market rents are. It could be the one rented is in a long term lease below market rate.

All things being equal if the empty one is in like kind condition it should be worth just as much and could still sell for more just because an owner / user can buy and will pay the most. But if you can rent it for the same amount per foot as the occupied one then its worth the same but some people will put some value on an already occupied property. The difference would be probably a few months rent since it will take a months to rent it.

[Hecmir]

Ok great. I’m glad you told me this because the owner has his restaurant (which is open), and rents out 2 of the other units(which have not opened due to strict covid rules in NYC) in the building (3 total). I was going to offer him a low amount since he plans on closing his business but now I’m considering different numbers. It’s not in a super high traffic area, he says business is good, and there isn’t that many properties like his. I’ll be talking to him tomorrow and hopefully find out how much he wants for it. The thing that sucks is that the food is really good there. Let’s see if I can get creative with this deal.

[Hecmir]

I’m going super conservative at:

Offering $510,000

$20 SF/Yr

it’s between 4,500 – 5,000 SF

3 Units

with 20% DN & Legal fees

ROI 30%

Cap 7%

3% Interest

O% Vacancy Rate

[Roberto Esposito]

Hecmir. I’m really appreciating your posts here. keep it up if you don’t mind man. Really helpful.

[Hecmir]

Yea man, no problem.

I’m happy I reread this post; Tom said “The difference would be probably a few months rent since it will take a months to rent it.”

What I got from that is if;

The future projected rent is $7,500 per month for 4,500 sf @ $20/sf

& the purchase price is $510,000

I’d subtract 3 months of rent to make it a safer purchase e.g.:

$510,000 – (3 x $7,500) = $487,500

New PP = $487,500

[Author]

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