Author Topic: How should I value this duplex?  (Read 4520 times)

leighb

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How should I value this duplex?
« on: August 19, 2016, 07:47:52 PM »


Hi All,

I have a duplex in Ohio that I've inherited. It's not a great property, but not an horrible one either. It's currently managed by a property management service. I've been asked "what I want for it?" It's really hard for me to evaluate its price I'm working with a range of 16,000 to 58,000 and I don't know which end is more accurate. So I'm hoping that you all can help me get an idea of what to ask for it.

Here are the details:

- 4 bedroom, 2 bath about 1700 sqft, built in 1883
- Neighborhood: C I think, close-in 45503 if your familiar with the area
- Duplex upper unit and a lower unit, each 2br 1ba
- Current rent 300 upper and 400 lower (which is up from 200 and 250 in 2014), neighboring duplex gets 600 for a 3 bedroom but it's nicer
- Expenses (prop management, lawn, bills, taxes... ) in 2016 so far $2200 and in 2015 $3200
- Profit from 2015 was about $500 (had the upper vacant for most of the year), profit this year should be about $1,600
- Appraiser $50,000 Zillow $58,000 Trulia $37,000 Estate $16,000
- Bought in the 80's for $15,000

Thoughts?

thedayisbrave

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Re: How should I value this duplex?
« Reply #1 on: August 21, 2016, 01:41:34 PM »
Are you looking to sell it?

You can always ask a realtor to prepare a CMA (comparative market analysis).  That will give you a smaller range to work with.  However the best idea might be to get an appraisal done.  They typically run a few hundred bucks but you will have a 3rd party verified value that you could then produce to prospective buyers (if you wanted to).

adamcollin

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Re: How should I value this duplex?
« Reply #2 on: August 22, 2016, 04:34:26 AM »
 Can you share some pictures of the house?

Landlady

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Re: How should I value this duplex?
« Reply #3 on: August 22, 2016, 11:22:27 AM »
A CMA could be useful as a previous commenter pointed out.
I always say that the best way is to put it on the market to see what the market yields. If you have someone asking you what you want for it, then it sounds like they'd prefer you keep it out of the market so that you may sell to them at under market value. Be wary of those buyers unless you truly would like to get rid of the property fast.

The Zestimate is a bad algorithm, especially for mutlifamily homes--so don't put much stock in that. Even the CEO of Zillow had a mispriced home on Zillow.

Reverse engineering a CAP rate might help to. Most investors want a 4-5% return, but acceptable cap rates are very localized and I'm not sure of the Ohio market.

leighb

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Re: How should I value this duplex?
« Reply #4 on: August 24, 2016, 08:39:54 AM »
The realtor who's also my PM thinks that I could get $25,000. He also thinks that I can get a CAP rate of 10% with a few changes and that I shouldn't sell. I've attached a photo.

Roboturner

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Re: How should I value this duplex?
« Reply #5 on: August 24, 2016, 09:02:12 AM »
jesus, homes are that cheap in ohio?? what am i doing with my life?!

J Boogie

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Re: How should I value this duplex?
« Reply #6 on: August 24, 2016, 12:29:26 PM »
Well, in addition to how you should value it, you should also consider tax implications of selling it at this point vs down the road.

Like others I find the $25,000 figure a little shocking. 

Grossing 700/mo, it's worth $70,000 to an investor who uses the 1% rule.  Even with the aggressive 2% rule it's worth $35,000.

I think you might want to hold on to it.  Maybe it's just cause I'm not from a LCOL area like Ohio, but I can't see your rents staying at 300 and 400 for very long, especially if you renovate a little.


How is he coming up with a cap rate without a valuation? It sounds like the place has an NOI of ~5000, meaning a 10% cap rate = $50,000 valuation. 


leighb

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Re: How should I value this duplex?
« Reply #7 on: August 24, 2016, 06:52:11 PM »
Well, in addition to how you should value it, you should also consider tax implications of selling it at this point vs down the road.

Like others I find the $25,000 figure a little shocking. 

Grossing 700/mo, it's worth $70,000 to an investor who uses the 1% rule.  Even with the aggressive 2% rule it's worth $35,000.

I think you might want to hold on to it.  Maybe it's just cause I'm not from a LCOL area like Ohio, but I can't see your rents staying at 300 and 400 for very long, especially if you renovate a little.


How is he coming up with a cap rate without a valuation? It sounds like the place has an NOI of ~5000, meaning a 10% cap rate = $50,000 valuation.

I think I used the wrong acronym: He gave it a ROI of 10-15% not a CAP rate. I'm not the best at the language yet, but I'm learning.

Ohio is a crazy world. You can buy relatively cheap properties easily. It's truly a rust-belt experience: Rents are cheap, people are moving away, there's depression, drugs... There's no appreciation. There's no guarantee that the tenants won't steal the stove when they move out. 

Enigma

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Re: How should I value this duplex?
« Reply #8 on: August 25, 2016, 11:46:13 AM »
Rents are cheap, people are moving away, there's depression, drugs... There's no appreciation. There's no guarantee that the tenants won't steal the stove when they move out.

Location location location...  I was all bought on the property until you threw out the last part of crime and strife.

If you are in no rush to sell it, I say get a realtor to list the property a little above what Zillow recommends.  For one it is the highest amount you gave.  You also have it rented out.  Which to an investor the purchase might be worth even more.

Just don't be in a rush to sell and you should be fine.  I would list for 60k or so and keep lowering the price every couple months.  Just how I would do it if I wanted to sell it.

DeanW5

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Re: How should I value this duplex?
« Reply #9 on: October 31, 2016, 09:17:19 AM »
There are a lot good recommendations here. But I would ask a realtor for a broker price opinion. They know the market well and have good knowledge of neighborhood trends, thus, they will set more suitable price for your duplex.

Bobberth

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Re: How should I value this duplex?
« Reply #10 on: November 01, 2016, 03:59:41 PM »
I personally have a lower limit of gross rents being $600 or more per month, preferably more. I'm in St. Louis so I know about low values and low rents but for $300 & $400 a month in rent, that is WAY too much risk to take for such a low potential profit amount. How many months of gross rent will it cost to replace a furnace or hot water heater? How many years of gross rent will it take to put on a new roof when you need it? Now figure those time frames using gross profit instead of gross rent as those events WILL happen. What happens if a tenant trashes the place? Don't mistake deferred maintenance for profitability. The good news is if they don't pay, you won't really be out any money.

This place-or any place with such low rents-will either turn you into a slumlord as you will have to defer all maintenance in an attempt to break even or you will become a charity case worker if you decide to take care of the property as you should.

Sell it if you can. Give it away if you can't (yes I kid but if you keep it eventually you will wish you did give it away). Get a real estate agent to give you an accurate price. The person asking how much hopes you go low.


sammybiker

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Re: How should I value this duplex?
« Reply #11 on: November 01, 2016, 04:11:39 PM »
I would post up on biggerpockets - surely you'll find some experienced investors that farm your area and they'll give you a no BS cash offer estimate and probably a realistic open market value.

$25k seems low, even for a C area given the market highs we're seeing (I buy in Ohio but not your area).  Maybe that's a no strings attached painless cash sale but you can surely extract some more value from it - my recommendation, same as posted above me, sell to other investors seeking those 1.5-2% deals.  Or if you're willing to get a little creative (and you obv own this outright), sell it with some owner financing to a local investor just getting started.

Lots of ways to skin this one.  I'd start reading up/searching for some nearby investors at the forums @ https://www.biggerpockets.com/forums
« Last Edit: November 01, 2016, 04:14:18 PM by sammybiker »

leighb

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Re: How should I value this duplex?
« Reply #12 on: November 05, 2016, 11:43:04 AM »
Consensus from BP is to sell as well.

Here's my pondering. How is this duplex better or worse than my single family that rents at $500? I'm questioning my whole rental strategy. Does it come down to the details of this particular property or will majority of all low income rentals end up being more trouble than they are worth. Right now I have enough properties that one can have an off year which is bound to happen. I suppose this house will not ever really make money.

This wondering has me stuck with inaction. I'm having a hard time selling this duplex because I can't isolate what's wrong and that might be because many things are wrong about it.

leighb

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Re: How should I value this duplex?
« Reply #13 on: February 26, 2017, 10:10:42 AM »
I just asked my real estate agent/property manager to put it on the market. I'm going to ask for $40,000 and drop the ask monthly until it sells.

Right now the bottom's rented at $500 and they are behind in rent and the top is recently vacant. I'll list the top for 400 and hope that and investor likes those numbers.

leighb

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Re: How should I value this duplex?
« Reply #14 on: April 10, 2017, 08:14:23 PM »
Whelp... Not selling, so I've dropped the price as planned. Now I wonder..... At what point do I give up selling it? Is there a point? Do I try again to make it work as a rental? Is it better to give it away than keep a bad investment? 

tralfamadorian

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Re: How should I value this duplex?
« Reply #15 on: April 10, 2017, 09:08:10 PM »
Some questions that come to mind-

How much deferred maintenance is on the horizon?  Best guess time left in the roof, plumbing, electrical and major appliances?  Ie: if you do decide to keep it, how much major maintenance can you expect in the next 1, 2, 5 years?  Will that expected maintenance negate your profit?

And how comfortable are you with the risk that a c-class tenant represents in an economically depressed market?  For me, being in a situation where one nightmare tenant who does 10k worth of damage (it happens) would take literally years of gross rents to make up would not be worth the cap rate.

And how much did you lower the price?  Are you down to the 25k that the property manager originally  estimated?  How much similar inventory is on the market in that area?  And their prices?  Most major markets are estimated as peaking or slightly past peak right now.  Unless there is something specific going on in your submarket that differentiates it from the rest of OH, the property will probably not sell for more in a year or two than it will this spring.

Villanelle

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Re: How should I value this duplex?
« Reply #16 on: April 10, 2017, 09:49:19 PM »
It was at $40k.  To what did you drop it?

Given that this is all found money anyway, I'd keep aggressively dropping the price until it sells.  *For me*, this wouldn't be worth optimizing because of all the risk--future major maintenance and less-than-ideal tenant pools. 

I think the old question of "would you buy this today" can help guide you.  Would you buy this property today at $30,000?  $25,000?  $20,000?  When you get the the point where you'd actually consider making that purchase, you probably have your minimum sale price.  So drop the asking price to that plus a little, and be done with it (hopefully).

Capt j-rod

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Re: How should I value this duplex?
« Reply #17 on: April 11, 2017, 10:12:50 AM »
Location location location... I live in northern Ohio. It is pretty rough around here. I pay double to get away from headaches and rough areas. The cheap stuff is every where, but I refuse to go there. The house is worth what someone will pay for it on the day you want out of it. Please don't take this as a smart ass remark. I have watched vacant bank repo property sit vacant for two years. The problem with a multi unit is that only investors are interested. These guys all network and control the cost of rentals. Houses that are 5 blocks apart sell for half of each other. I would rent it out, let the management company run it, and keep it on the market. This is the best time of year to get new tenants and buyers

waltworks

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Re: How should I value this duplex?
« Reply #18 on: April 11, 2017, 11:52:26 AM »
I agree. Drop the price until it sells. Even if you are basically giving it away. The downside risks aren't worth the minimal returns.

-W

leighb

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Re: How should I value this duplex?
« Reply #19 on: April 16, 2017, 09:21:42 AM »
The plan is to drop it by $5000 each month. So it's at $35,000 for two more weeks. It is an old house and will continue to be nothing but trouble for me. But for someone else, it might work.

You all are absolutely right on a number of points. At what price would I buy it? I wouldn't. Am I willing to put up with class C tenants? Yes and no. Will the deferred maintenance kill any profits? yes, easily. 

I'll stick to my plan of lowering the price until it is gone.