Selling multi family real estate is a COMPLETELY different business than single family investing – and even more so than selling the home with the ‘white picket’ fence for a regular home owner.
Multi family buildings are all about numbers and fundamentals! This is something both you and your realtor need to understand before selling multi family real estate.
4 MISTAKES Kitchener Realtors Make When Selling Multi Family Real Estate
1 – They Don’t Provide Accurate Numbers … If Any!
When you’re thinking of selling an apartment building you need to realize that the buyer on the other end is very likely a sophisticated investor.
For example, how many home owners do you see out there buying a 6-plexes and up? Virtually none!
The key to selling anything in all areas of business is by understanding your customer. In this case, it’s another investor such as yourself.
And they make their investing decisions PURELY based on income.
Unlike it’s counterpart – single family, nobody is investing over $150,000+ of their hard earned cash (or their partners money) into an asset that doesn’t cash flow and generate profit. Let’s get that clear!
‘Uneducated’ investor’s might do that in single family but you’re not going to be able to slip a building that doesn’t cash flow past a multi family buyer – and that’s because the caliber of buyers in this ‘sand box’ are MUCH more educated and sophisticated.
So let’s step it up, shall we?!
Provide your realtor (and MAKE SURE!) that they attach a detailed financial breakdown to the listing for any potential buyer to look over.
Remember, these investor-buyers are sitting at their desks crunching numbers all day and if your listing doesn’t have ACCURATE numbers (because they’ll know right away!), they’ll skip over onto the next listing.
Nobody wants to deal with “projected” or “potential” rents. They want REAL income.
And as an investor specialized realtor like myself, I don’t have to tell you that the income generated by your building dictates the value of your building.
So if you’re thinking of selling multi family real estate in the next six months, it’s best to get in touch with a realtor like myself. They can advise you on tips to raise the income of the building – thus directly raising the value.
For some great tips on how you can raise the value of your building, read my blog “7 Ways To Raise The Value Of A Kitchener Multi Family Building”
2 – They Don’t Invest Themselves!
The second mistake realtors make is by not specializing and investing in real estate themselves.
As I stated, buying and selling multi family real estate isn’t a joke! This is a COMPLETELY different business than selling ‘regular’ homes and one that requires savvy financial skills. You need experts on your team!
Why would you want a realtor that doesn’t understand real estate investing themselves? And not just logically – personally!
This not only shows that they know what other investor’s (such as themselves) are looking for, but they’ll know how market and ‘pitch’ your deal effectively to other buyers.
The other benefit to working with an investment specialized realtor in your area is that they’ll likely have a large pool of qualified buyers. For example, it’s not uncommon for me to sell my clients properties before they even hit the market.
It’s crucial to have realtors on your team that invest themselves. And I’m not talking about 1, 2 or even 5 properties. Preferably MORE!
This not only shows that they’re obsessed with real estate investing (like you are, I presume!) but that they know how to run a BUSINESS – not a hobby!
Or that they’re simply in search of their next commission cheque!
3 – They Don’t Know How To Value A Building Properly!
If you don’t know how to value a building properly when selling multi family real estate, it’s going to sit on the market for a LONG time. Unfortunately, this is something I see A LOT of on the Kitchener-Waterloo MLS!
Pricing a property correctly in all avenues of real estate and business is important. Remember, the multi family universe is very small compared to single family.
If you have a stale listing, it won’t be long before every qualified buyer knows about it. And when a listing goes stale, buyers think something is wrong with the building.
And you can expect what happens next? You got it. Low ball offers!
Every investor thinks that their building is worth more than it really is, I get it. It’s normal.
But when you work with a specialized realtor they know EXACTLY what the cap rates are in their city and more specifically, in every neighborhood!
As I said, when selling multi family real estate it all depends on INCOME and CAP RATES!
For example, if you have a 15 unit building in Country Hills, Kitchener listed for $1.5M and your net operating income is $65,000 – that means the cap rate that you’re selling at is 4.3%
But as a savvy investor agent in Kitchener, I know that the cap rates in this area for a building in ‘decent-average’ shape is 5.5-6%.
This means you’re over priced! The building is only worth $1,083,333.33 at a 6% cap rate.
How long before your listing at $1.5M becomes stale?
Remember, commercial lenders and CMHC KNOW what the cap rates are in major towns and cities. So it doesn’t matter if you get an accepted offer for 1.3M.
If the appraisal comes back at a 6% cap rate based on your REAL (not projected) financials, guess how much Mr. Buyer is getting financing for? You bet, $1,083,333.33!
Commercial lending is very cut and dry!
So what do you think the buyer will do after receiving this news even though you have an accepted offer of $1.3M?
That’s right. He’s coming down in price or walking away. Or paying the difference himself in cash – which is definitely possible if they see long term value in ‘over paying’ today. But I wouldn’t bet on it as a main strategy.
Obviously there’s more much more that goes in valuing a building, but the example above isn’t too far off.
Working with an agent that knows this when selling multi family buildings is key to your success!
4 – They Don’t Show Pictures!
The next mistake realtors make when selling multi family real estate is by not providing pictures.
And no, a picture of the exterior front and back does not count!
As investor’s, we know that the units in buildings usually aren’t the prettiest things to take pictures of. We get it!
However, we are investor’s and we need to at least get an idea of the condition of the building so we can run our numbers (based on cap rates) and see if this property is even worth our time.
If your realtor is not providing pictures, it’s likely going to slow down the momentum of your property from selling.
You now know some of the ‘insider secrets’ to why most multi family properties in Kitchener (and likely many other cities) sit on the market for so long.
The key to this whole article?
Work with a pro savvy investment realtor!
I know, I could have saved you 1300 words. But at least you’re now informed!
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