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Why Your Rental Property Is Worth $50k Less Than Your Neighbors

 I often get the question, “why is my property worth less than my neighbor’s? My neighbor’s house sold for,” in this particular situation, “$600,000. My house is listed at the same thing but I’m not getting the attention or it’s not moving as quickly as my neighbor’s home.” I am going to try answer that question really briefly. Hopefully you like my little graphic here. I am really proud of myself, able to put this together. Not that artistic so it took me a little bit. Hopefully it shows the point pretty clearly.

In this particular instance we’re talking about multi-families. We are talking about, in this particular model, two triple-decker side-by-side. Let’s assume all else is equal. They were built the same year. In the same condition. The tenant base is just as strong. All the systems are working just as effectively or efficiently as one another. All else being equal, the only thing that differs between these two properties is the rental income being produced.

In property number one in our example, you have three units. Each one of them is collecting $1500 per unit. Let’s assume they’re three bedrooms. In property number two, again, all else being equal, you have three bedrooms collecting $2000 a piece. The difference typically that we find between buildings that are almost identical selling for two different prices is the rental income that’s being produced. When buyers buy a rental property, when they buy a multi-family building, a lot of times their intention is to … and not a lot of times, most times, I would say all times, their intention is to collect as much rent as possible to help them reduce their expenses. A lot of times their mortgage qualification relies on the rental income that comes in to help them qualify for a larger purchase.

In this particular example, all else being equal, this particular model, this particular property is worth $550,000. This one is worth roughly $600,000 because of the differences in income. Often you have the seller of property number one saying, “well my house, I’m putting my house on the market and you’re telling me it’s worth $50,000 less than the house two doors down that’s almost identical to mine that sold for 600. Well I know my neighbor and I talked to my neighbor and they’re getting 600 for their property. Why is my house sitting on the market and it’s not getting the attention when we’ve listed it at the same price?”

Again, there are a lot of different factors that go into selling property. The condition, the atmosphere, maybe this person sold in a nice summer market and this is coming onto winter. The rental income is not the only factor that goes into the final price. A lot of times whether you’re talking about multi-family properties, especially the triple-deckers that we have here in New England, the rental income is a big factor and the more rental income that you have being generated by the building, typically the higher the sales price of that building compared to similar buildings.

The point we’re trying to make is more money increases value. More money equals more value. The second point is staying up with the market. Staying up with the market. Staying in touch with what’s going on in your local rental market. By that I mean, typically the reason that you find a difference between these two buildings and what they’re renting for is this person has had long-term tenants. Very good thing, but while these tenants were staying in place, this landlord never systematically went back and increased the rents. The thought process is, and again, to no fault of this person, it’s very common that this happens, is my tenants are great. They’re great people. They don’t give me any trouble. I just want to keep them in place and I want to keep them happy. I’m not going to touch the rent. As long as they’re paying the bills. It is paying the bills that I’m covered. I don’t need much out of it.

Ten years down the road, fifteen years down the road when they’ve gone … when it’s time to now sell, this person has kept up with the market, systematically said, “okay, the three bedroom apartments are now renting for $1800, now they’re renting for $1900.” As tenants move out and new tenants are being replaced, or the tenants that are in place stay there and he systematically increasing two, three percent over time to keep up with the current market rents. When it’s time for these two individuals to sell, they’re cashing out, they’re retiring, they’re moving on, they’re trading up, whatever it is, this person now, despite how nice he was to his tenants or she was to her tenants, over the years is now put themself in a tough situation compared to the person who kept up with the market.

At the end of the day, buyers are going to look at what the property is producing and say, “I’m going to make my determination of value based on,” not solely, but again, in large part on what I can get back. Even if I occupy this unit, we’re looking at it from an investor standpoint, even if we looked at it from an own occupant standpoint and we said we took away this rent, we took away this rent. I now have $4000 to help me with my mortgage. In now have $3000 over here to help me with my mortgage. I can actually not only afford to pay more according to my mortgage broker, but it makes sense for me to pay more for this stream of income. That is exactly what buyers are purchasing. A stream of income.

You as a seller should over the years understand that you want to be systematically raising your rents, systematically increasing your rents, not to be troublesome to your tenants but to make sure when that sale comes sometime in the future that you are prepared for it and that the value of your building has been maximized because the rents have been maximized.

I Want To Know My Home’s Value!

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Malden 2-4 Family Sales Are On The Move… Just Look At The #’s

Malden’s Multifamily Sales & Rental Statistics

Are you a current or aspiring landlord in Massachusetts? No matter how many years you have in the rental business, fully understanding your local market is one the most important thing you can do to ensure your long-term success. Receiving regular market updates will help you determine when’s it time to buy and when it’s time to sell. It will also allow you to see what your apartments rent for in comparison to your neighbors. Should you be increasing rents? Is now a good time to sell?

Here is Malden’s multifamily sales and rental market statistics for the last 6 months.
Total Multi-Family Listings SOLD: 87
Average Living Area by Square Feet: 2,640.00
Average Listing Price: $543,735
Average DOM (Days on Market): 43.11 Days
Average Sales Price: $534,782
Average Rent for 1 Bedroom Units: $1,453
Average Rent for 2 Bedroom Units: $1,854
Average Rent for 3 Bedroom Units: $2,138
Average Rent for 4 Bedroom Units: $2,345

I Want To Know My Home’s Value!

Want to get a FREE Sales and Rental Market Report for your specific area(s)? Just send a quick email to Contact@MandrellCo.com to receive your monthly report. In the title put the words “FREE Boston Sales Statistics” and in the body, add the up to 3 areas you’d like to receive data for. Your name and email will be added to the next monthly reporting cycle. It’s that simple to stay up to date and ahead of the curve!
Please call us directly at 617-297-8641, for custom reports or questions above the data provided.

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You Should Buy An Investment Property Before Your Primary Home. Here’s Why:

VIDEO: Many would be investors start thinking about investing in real estate too late in the game. Here are a couple few why you should start thinking about real estate investing long before you buy your dream home.

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How Long Will It Take For My Home To Sell?

What is your typical selling timeline and why it’s important to you as a potential seller? If you’re selling a property, you really need to know what’s the next steps and What am I looking forward to. How soon do I need to move out of this property? How soon do I need to turn over the keys to the new buyer?

That’s what I’m going to try to lay out for you. Hopefully it’s pretty clear through my timeline sketch here. When you first put a piece of property on the market and you tell your realtor, let’s go ahead and let’s sell this property, the first thing that your realtor is responsible for doing is marketing and selling the property. Your realtor’s going out and they’re putting the property on the MLS, on Zillow, on Trulia, these different marketing websites, they’re putting it on their own company website. They’re going out there and they’re doing open houses, doing private showings. They’re trying to find that potential buyer for you.

Once that potential buyer is found, and by found what we mean is, a potential buyer has seen the property through an open house, through some type of marketing venue and they’ve now placed an offer on the property. You realtor at the time of receiving that offer is going to come to you, they’re going to negotiate with the potential buyer on your behalf to get the highest sales price with the best terms possible. Once you, the seller, and that potential buyer have agreed to a price, agreed to terms, we call that day one. That is your offer to purchase day, that is the day that the offer, or OTP, has been accepted. That starts your timeline.

You have agreed to sell for a particular price, the buyer has agreed to buy for a particular price, which starts your 45 day approximate timeline. From there, in a typical situation your buyer is going to go into their 10 day home inspection window. Most offers are submitted with a 10 day, standard 10 day window and this allows the buyer to now enter your property, and to your tenant units and to, if it’s a multi-family enter the property to inspect the home with a licensed home inspector, with a contractor, to make sure that the systems are working, to make sure that the roof is okay, to make sure that the windows operate.

They’re going to do a full inspection to make sure that the property is truly what was being presented to them and it is in good working shape. At the end of that 10 day period, you can go with the buyer, it can go in a couple different ways, the buyer can say, I love the property and I want to move forward. That’s what we hope that the buyer does. The buyer can say, there were some things I didn’t really agree with at the potential property, this is not the right property for me, I’m going to back out of this transaction, or the buyer can say yes, I like the property but the price that we agreed to on day one, I don’t feel like that price is appropriate any longer.

The heating system is not working the way it should be, or it’s working but it’s much older than I anticipated. The roof is fine, but it’s much older, it’s 20 years into it’s life and is going to need to be replaced. The buyer has three options, either back out, move forward or renegotiate after that 10 day period. They’ve done their home inspection, let’s say hypothetically we’ve renegotiated and you both, the seller and the buyer, have come to an agreement on price. After that, you as a seller, the buyer, would both hire attorneys and you would go into what’s called the purchase and sales contract, or P & S.

What that does, it solidifies the deal and puts all of the offer information and the final price with the terms into a nice contract that the attorneys can use and it helps us move forward into the sale with a more concrete contract than the offer and purchase. The buyer is also going to put down a larger deposit this time and say yes, this is the property that I want, I’m now going to pursue my mortgage. You’ve had day one, you’ve had your home inspection period, we’ve renegotiated the price, we’ve gone and we’ve hired two attorneys, we’re gone onto purchase and sales.

The buyer is moving forward, the seller is moving forward. Now for you as a seller, from that day 15 to day 45, it’s about a 30 day window, I’ll describe to you a little bit about what the buyer is doing. The buyer in this particular situation is putting their mortgage together. They’re going back to the mortgage company and they’re saying, I found the property that I want, I’m submitting my taxes now, I’m submitting my other documents and the mortgage company is processing all that information to make the distribution, to pay you for the property and to put a lien on the buyer’s property.

You on the other hand, you as the seller, are working with your realtor to do three main things. One is the bank of the buyer is going to send out an appraiser to appraise the property to make sure that the property is worth the amount of money that you have agreed upon. Your realtor is going to make sure that the appraiser has access to the property and that the appraisal is properly done for the bank. The realtor, your realtor is also going to work with the local fire department to make sure that you have a smoke certificate.

Any time a property is being sold, the property needs to come with a certificate from the Boston or local municipality saying that the smoke detectors are in working order. Your realtor is going to help you cover that and you also have to get a final water reading. What are you paying for water bills, at the closing day you want to make sure that all your water bills have been paid and leaving the new buyer, the new owner of that home with a clean balance, a clean water lien with the local municipality or local water department.

Day one, day 10, day 15 and then finally we get to day 45, sometimes there is delays depending on holidays, sometimes it’s bumped up depending on if the buyer can submit their mortgage documents sooner but it’s typically a 45 day timeline from the time that you receive that offer to the time that you get to closing day. At the closing table you would exchange keys with the buyer, you would get the check from the closing attorney for the balance, assuming that your mortgage will be paid off, all the liens will be paid off on the property and whatever is left over you would receive as the potential seller.

Again, when you’re selling a property you typically have about a 45 day timeline from the day that you receive an offer, that offer to purchase is accepted to the day that you close and the new buyer is now the owner of that potential property.

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