“It’s not what happens to you, but how you react to it that matters.” — Epictetus

I’ve had a version of this conversation with different owners in the last month, and it always starts the same way: “I don’t get it — my rent roll looks better than ever, so why did my appraisal come back lower than I expected?”

WHAT CHANGED? Here’s what’s actually going on. Across Southern California, rents have kept climbing, but the way buyers value income has changed underneath us. Cap rates have expanded significantly over the past couple of years, which just means buyers are demanding a bigger return for every dollar of income a building produces. The result: a building can be collecting more rent than ever and still be worth less than it was.

WHAT TO DO? I’ve seen this catch owners off guard more than almost anything else in this market. The old approach — raise rents, sit back, and let appreciation do the rest — isn’t enough right now. Value today comes from actively managing the building: watching operating costs, staying ahead of new compliance requirements, and knowing your specific submarket, since conditions right now can vary block by block, not just city by city.

If you’ve been wondering whether this is a good time to sell, hold, or refinance, the honest answer is that it depends on your building specifically — not on a headline number. I’m happy to run the actual numbers on your property and give you a straight read on where you stand, no obligation.

IMPROVE YOUR NUMBERS. Things like R.U.B.S., the company that bills tenants for water, checking your utility bills to make sure there are no errors may help. Perhaps now is the time to consider that unit re-configuration, potentially adding to your bedroom count. Of course, the most obvious one is to raise rents when rent raises are allowed in your municipality..

Most people overestimate what they can do in a year, and underestimate what they can do in two or three decades.”  Tony Robbins

What we at PRS PROPERTIES CAN DO. We can give you a good idea of the current value of your building. We can suggest changes you might want to make before sale to give you an idea what type of building you would be able to exchange into. You may decide to stay in the rental business or you may want to move into a more passive real estate investment, such as a triple net or a DSL.. We are always available to chat. We can give you referrals for professionals, such as lenders, contractors, and engineers, so that you can decide who you feel best with. We can supply you with rent and sale comparable in the area of your properties, so that you know what rental values are in your area. It is important that you know the true value of your rental units, so that you can get them rented right away at market value, or at least as much as possible with rent control restrictions. We can look at potential purchases that you may be interested in to make the property more desirable, and maybe look at potential issues that an insurer might require you to repair.

If you should decide to sell your building, we can help you exchange into a larger or smaller properties. We can even help you move into something with less management responsibilities. We can also help with getting the paperwork together for a refinance if that is your desire. We can also recommend experienced licensed contractors who can perform any repairs or installations you may need prior to selling. We can also look at your building for other easy and inexpensive changes that might allow you to get a higher value. We can help you to get the maximum value for your property, should you decide to sell, or the maximum return if you are planning to keep your building.

We are currently looking for “as-is” properties and are willing to purchase with low rents, deferred maintenance or even with a problem tenant in place. We can offer a 7 day escrow and all cash at closing. Give us a call. We have also put together numerous transactions over the years which involve properties that are not listed for sale. Many investors are currently in 1031 exchanges and need to identify a replacement property before their 45 day identification period runs out.

Should you decide to put your property on the market, we will put together an aggressive, targeted and professional campaign to get your property sold fast. We have been doing this for over 45 years, and we will use all the tools available to bring you the most dollars at closing. If you are thinking of selling or are just curious about the value of your property, don’t hesitate to give us a call.