Are you a property owner that wants to sell their condo, investment property or needs to rent an apartment or retail space in New York City? Call or text me: Sam Moritz, licensed real estate agent, 203–209–3640.
Do you know a property owner that might need real estate help? Refer me! I provide great and professional real estate services across all five boroughs.
Property values are determined by similar home prices in the area, whether it’s an investment property, condo, or rental. If it’s an investment property, then the Cap Rate Formula, based on the current or potential income of a building, can also help figure out the building’s value (read this whole article for information about that).
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Recently a Brooklyn landlord who I’ve worked with to rent apartments over the years told me he wanted to sell his 3000 square foot four family frame building in Bushwick (frame means that the building is NOT brick, it’s wood, but there are a few different types of wooden structure that it can be — this is an important detail when determining property value). He asked me to shop the building around to potential NYC-based investors who might be interested in purchasing it.
I got excited at first at the prospect of a major payout, but when he told me how much he wanted for the property — $3,500,000 — I was a little less excited. The price sounded high to me, and after doing a little homework, I determined that the building would likely not sell unless the price was closer to $2,000,000. (by the way, he and I have become friends over the years, and he told me I could write about this).
Side note: I mean, I guess it is possible that a buyer could come and pay $1,500,000 or more than the market value of the building – but it may difficult, for a few reasons:
1) Listings have competition. For condos, if a similar one bedroom is being listed at $500,000 below your listing, and two bedrooms are being marketed for the same price as your one bedroom, it will be very difficult to sell your listing. Sure, there could be some kind of an emotional buyer who loves your unit, but buyers are generally looking for value for their money. If they can get a two bedroom for the price a one bedroom, most times they will get the two bedroom, for bypass the one bedroom. I’m saying this is the case most of the time.
2) If it’s a building sale, the current income of the building will need to be enough to cover its expenses (insurance, taxes, gas, common area electric, water / sewer are usually the big expenses). If a buyer has to get a mortgage, borrow on $1,500,000 over the asking price, then a price one million above market value may be difficult because they may not be able to cover their expenses.
Anyway – back to the example from above. How did I figure out the price of this four family building was high?
For investment properties, it also takes a certain kind of buyer to buy certain properties, especially in New York City, where I keep hearing from investors that it’s becoming increasingly difficult to build and develop. If you are a seller of a building in need of renovation, you will need to find a buyer who has experience building (and who has access to capital).
After my Bushwick landlord and I were finished talking about him wanting to sell, I immediately went home to my apartment in Williamsburg and logged onto Propertyshark.com (used by a lot real estate professionals for this type of work), to see what similar properties sold for in the area. I wanted to confirm that the price sounded high.
I found basically the same building — a four family 2800 square foot frame building that had sold for $1,900,000 a year before.
Unless the stars aligned, it was going to be very difficult for my owner to get $3,500,000.
But he did mention that he felt confident that he could politely ask the tenants to leave if the building was to be bought, therefore delivering the building vacant. This is an important detail. The building was less modern than other buildings nearby in Bushwick. It wasn’t a bad or poorly maintained property by any means, it just wasn’t super modern. An investor could buy it, come in and renovate the units — add dishwashers, central air, and laundry, touch things up a bit, and definitely increase the rent roll. But many owners will not want to ask the tenants to leave, which is understandable.
If the building is to be sold and marketed with the tenants inside of it, then the purchase price will be reflective of what the current tenants pay in rent using the current cap rate percentage in the area.
What is Cap Rate?
It’s a little confusing, but the definition, according to investopedia.com, is this: “the measure based on the net income that the property is expected to generate and is calculated by dividing net operating income by property asset value and is expressed as a percentage.” Here’s a link to the article: https://www.investopedia.com/terms/c/capitalizationrate.asp
Honestly, all you need to know is this: properties in Williamsburg and Bushwick, Brooklyn, are selling at around a 6% cap rate (to a certain extent – rent stabilized buildings are selling for a higher cap rate).
Recently, a different owner in Bushwick sent me the rent roll for his building, which is a five family brick building with a commercial space. The total GROSS monthly rent before expenses for the apartments and commercial space was $17,018 per month. Per year that’s $204,216. Roughly, thirty percent of the gross income will be expenses. Now we’re at $142,951 per year net income. Cap rate in the area is 6%. So $142,951 / .06 = building value is around $2,382,520.
A seller’s appraisal may also help you get a non-biased opinion of what your property is worth, before going to market with a professional real estate agent.
If you want assistance selling, do not hesitate to reach out. I have a lot of experience marketing, circulating, and showing properties, and have a good handful of investors in my rolodex for building sales looking to purchase right away.
Are you a property owner that wants to sell their condo, investment property or needs to rent an apartment or retail space in New York City? Call or text me: Sam Moritz, licensed real estate agent, 203–209–3640.
Do you know a property owner that might need real estate help? Refer me! I provide great and professional real estate services across all five boroughs.