Buying, selling and operating apartments in Portland

Determining a price to pay – Process | 29 April 2010

In order to arrive at a price based on real operating data, one method is to:a) Determine a Capitalization Rate based on real numbers. Your price will reflect current Capitalization Rates for the condition, size and location of the units. Your broker can look at historical sales and closed comparables to give you this number.

b) Determine if major repairs will have to be done. If they are legitimate, you can either ask for a credit (price adjustment) or request the seller remedy them before closing. You may want to check with your bank to see if they have any minimum required repairs (e.g. they may require some proof your roofs have a five-year lifespan.) If the seller does correct physical problems ensure you have enough time before closing to re-inspect and approve repairs made.

c) On intangibles like “rents below market”, do NOT allow this to affect your offering price! You are buying a property as it operates NOW. Remember Rule 1: Make sure you are making money at the time of purchase.

d) Any price must allow you a net operating profit – This is your reserve against unforeseen expenses or income loss. If you do not have an operating profit and you have an emergency repair, you will need to fund it out of your pocket. The goal is for any property to be self-funding and independent.