multi-family comp

[Abester]

Please provide your evidence

I am also a broker. I listed a hotel where there was upside potential. The buyers were clearly buying based on the upside potential. However, even though the owner recognized the upside potential, the owner did not have the management skills to realize said potential. The purchase contract was based on the historical operating performance - not what the buyer expected he would be able to generate.

I am not aware

A lack of awareness does not make it any less true.

is how the methods are taught by all of the major appraisal organizations.

I have yet to take a class where the market rent was used to derive a cap rate instead of actual rent. By that logic, you wouldn't even need a sale of an income producing property at all - just take one that's owner occupied, apply some market rent, and report the market extracted cap rate as gold. My BS meter is going wild...

But, that's OK. I'll concede to being in the dark. This is my last post on this. I have to go make up some rates, I guess.

 

[DTB]

I am also a broker. I listed a hotel where there was upside potential. The buyers were clearly buying based on the upside potential. However, even though the owner recognized the upside potential, the owner did not have the management skills to realize said potential. The purchase contract was based on the historical operating performance - not what the buyer expected he would be able to generate.



.

:Eyecrazy::Eyecrazy::Eyecrazy:

Everyone and his brother knew it was being sold based on the upside, yet the purchase was based on the historical operation? What does that even mean???


So you have a 50 unit building with 10 being renovated after 2 years of vacancy. Based on the operational history you are unable to project the income/value of this property as they come on line?

 

[Abester]

Everyone and his brother knew it was being sold based on the upside, yet the purchase was based on the historical operation? What does that even mean???

Why don't you call me, and I'll explain it to you.

 

[Abester]

I'm talking about deriving cap rates and income multipliers from the market. What are you talking about?

 

[Abester]

Send me a PM if you want to discuss it. I have work to do now.

 

[PropertyEconomics]

Cap rates, income multipliers and other indicators from comparables are not based upon historical operation of the property nor short term contract rates. What is significant in the analysis is the buyers expections/proforma. This is what the sale price was based on. All of this information is propertly derived from the conformation process.

Cap rates, income multipliers, and other indicators are ABSOLUTELY based upon the historical data of the subject. Why would an investor purchase a property, that was below market rents, as though it were producing market rents? There is no incentive for a buyer to do that.
Overall rates reflect the actual condition, income production, and some measurement of risk associated with future rents.
I respectfully disagree that they are based upon the buyers proforma. The price is based upon actual operation in my experience, with future value concluded by the borrower based upon their proforma as to what it will take to get the property where it can be. In my opinion all properties should be treated the same, those below market will be measured by actual rents, those at market will be measured at actual rents, and those above market will be measured by actual rents with the resulting DIFFERENT overall rate being reflective of the property as of the date of sale based upon its historical operation.
To do otherwise .. is making the data say what you want it to say rather than what it actually indicates.

 

[Howard Klahr]

The price is based upon actual operation in my experience

You are 100% correct. However, let's not confuse the issue of price versus value. As appraisers we are retained to priovide an opinion of value.

 

[PropertyEconomics]

You are 100% correct. However, let's not confuse the issue of price versus value. As appraisers we are retained to priovide an opinion of value.

The price WAS the value to that borrower. No lets not get confused unless any kind of special financing or other conditions of sale are present. Overall rates, multipliers and MARKET indicators must be gleaned from the actual income / expense history measured against the SALES PRICE ... of the comparable. Not its market value (as estimated by an appraiser).