# Maximizing Profit on Sale of Rental Property



## Chris L (Nov 16, 2011)

So the property to be sold is a triplex which is rare in my city. It has a 1-bed and 2 x 2-bed. It has only a front yard and limited parking. I will have to figure out rents, but right now it is being renoed and vacant. What metrics would we use to calculate the value based on CAP? What is the going rate for CAP in Ontario? We have limited comparable (but do have some), however, if you know the area of SO, you know that the properties are quite unique. This is a 1800's convert farmhouse. I can get more details about forecast rent in a little bit, but just wondering the best way, or various ways, to decide on it's "true" value. Any help is appreciated.


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## naysmitj (Sep 16, 2014)

Selling it occupied may provide a better return.


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## Chris L (Nov 16, 2011)

Okay, crunched some numbers:

Cash In (Estimated)
1-bed = $900 + utilities (not paid by owner)
2-bed = $1300 + utilities (not paid by owner)
2-bed = $1300 + utilities (not paid by owner)
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$3500/month rent

Expenses
Taxes = $250/mth
Utilities = $0
Insurance = $100
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$350/month expenses (plus incidental repairs and maintenance - see notes at bottom)

Maintenance would be minimal. FULLY updated (back from studs), all new wiring, plumbing, baths, kitchens, appliances (washer/dryer in each unit x 3), fridge, stove, etc. Higher-Mid range finishes and tiles, etc. The building is about 2100 sq ft. Building is located in Southern Ontario. Units are all legal with city and fire code compliant, ESA inspected. What's a fair price? What's the going rate for CAP? 

An agent has recommended $545K. Thoughts?


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## Rusty O'Toole (Feb 1, 2012)

Triplexes and duplexes typically sell for more than they are worth from a strictly investment perspective. They are bought by unsophisticated investors who just want some help paying the mortgage. A good real estate agent should be able to price it right.


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## Just a Guy (Mar 27, 2012)

Rusty is right, best to sell it to an unsophisticated investor. A realtor would be your best advisor on how to price and sell it. Real investors probably wouldn't touch this property at the price you want.


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## Chris L (Nov 16, 2011)

I'd like to go in with an educated position. The market is so hot right now I may be able to sell it quickly and privately (I have done so before). It's just hard to come up with a price that will work in the tight market without leaving some money on the table. Agent says $545k which is at the low end of comparables.


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## markus_zhang (Apr 10, 2016)

Just a Guy said:


> Rusty is right, best to sell it to an unsophisticated investor. A realtor would be your best advisor on how to price and sell it. Real investors probably wouldn't touch this property at the price you want.


May I ask what is your opinion of its fair price? From my perspective, if you calculate it as a perpetual bond, with risk free rate as the discounting rate, and count in the depreciation, 545K does not seem unreasonable. But of course I'm new in the business of real estate and my method must be too crude to be of practical use. So I'm wondering how do you guys value real estate? Thanks in advance.


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## Just a Guy (Mar 27, 2012)

If the income is only $3500/month, I wouldn't be willing to pay more than $350k at best. Now, considering it's composed of two 2 bedroom places and a 1 bedroom place, I'd probably discount that even more. Then, it would depend on the condition of the place, if it needs major renovations (roof, siding, furnaces, hot water tanks, etc.) or even minor renovations (flooring, paint, cupboards, etc.) it's pricing would also need adjustment.

Real estate today, in my opinion, is highly overpriced. As an investor, you need to look for long term cash flow and possible appreciation. While this property may, possibly, cash flow today at $545k (even then it would be a stretch), it certainly won't cash flow once interest rates go up a couple of percent.


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## markus_zhang (Apr 10, 2016)

Thanks for the insight~


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