Hi...i'm fairly new in the business and I'm trying to educate myself as much as possible...

I'm currently working on a commercial deal and the buyer is interested...and he's asking me if the property is 8 X rent roll...i don't want to say i dont know what he's talking about but I honestly don't. I don't want to lose him becuase he might feel i'm not knowledgeable enough to deal with him.

So can someone please explain to me whta he means by this...he's a very serious buyer and it's a lot of money that he;s willing to spend.

So what does it mean 8 x rent roll?

Thanks so much for your help in advance guys...I really appreciate it?

I have never heard of "8 x" in commercial real estate. I am assuming that this is a multi-family property. The rent roll is simply the rental income, which could be calculated monthly or annually.

Ask the listing agent to send you a copy of the income and expenses for 2007 and 2006 if they have them. This should be all of financial information that your buyer needs. Your expertise comes into play when evaluating the current rental rates and appropriate market CAP rate for the property based on its size and location. You also might want to consider asking someone else in your brokerage with more commercial/multi-family experience.

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Ryan A. Martin - Windermere Real Estate / Whatcom Inc.

Your Bellingham real estate professional specializing in the listing and sales of Bellingham condos. Also check out my Anacortes real estate website for information about Fidalgo Island and Anacortes, WA

Let me preface that I am not a commercial real estate person, but I think it would be better to ask more questions to your client, clarifying what they are asking and find out why that is important to them. You don't have to have all the answers, but follow up and let them know when you have the information.

This 8 x rent roll may be something that they read or heard about somewhere and isn't relevant to that property or your market.

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Carolyn Gjerde-Tu

Davis CA Real Estate
Granite Bay Real Estate Sacramento Real Estate

Well we're working on a particular property, apartment building, and he's asking if it's 8x rent roll...... I don't know what he means?

When you're purchasing multi-family (apartment building) units, commercial buyers and lenders look at how the asking price compares to the annual rental income. The question is, how does the asking price compare to 8 times the annual rents.

When I used to own rental apartments (37 of them) back in the late 90's, commercial lenders liked to see the sales price be no more than 5 to 6 times annual rents. If it was higher than that, it was very dfficult to get financing.

Today, the numbers have changed to 8 to 9 times annual rents. That is probably why your client is asking the question. To see if it is a good buy and if it is in line for possible financing.

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Benjamin Dona, Broker/Owner
Gulf Coast Associates, Realtors
Metro Mortgage Company
Bonita Springs Real Estate | Florida Home Loans | Naples Real Estate

Benjamin - Hmm... I have never heard in phrased that way before, but that would make sense. We typically work off CAP Rates because they take into account for operating expenses.

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Ryan A. Martin - Windermere Real Estate / Whatcom Inc.

Your Bellingham real estate professional specializing in the listing and sales of Bellingham condos. Also check out my Anacortes real estate website for information about Fidalgo Island and Anacortes, WA

That's true too Ryan. Cap rates are important. It's just the lender side of me is showing through with the "times annual rents" numbers. Most of the lenders for these types of properties are banks and they want to see cash flow. If the asking price is 10-12 times rents and the average for that area is 8-9 times rents, then you can have a problem with finanicng. With a usual 1.5 debt service number required nowadays, you can see how the times rent number can be a good indicator to use to make a rough estimate on purchasing a commercial property.

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Benjamin Dona, Broker/Owner
Gulf Coast Associates, Realtors
Metro Mortgage Company
Bonita Springs Real Estate | Florida Home Loans | Naples Real Estate

Got it. I know a lot about commercial and multifamily real estate, but I am certainly not an expert on commercial lending lingo. I stick to the real estate side. Thanks for the input

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Ryan A. Martin - Windermere Real Estate / Whatcom Inc.

Your Bellingham real estate professional specializing in the listing and sales of Bellingham condos. Also check out my Anacortes real estate website for information about Fidalgo Island and Anacortes, WA

The 8 X rent I think would fall short for the most part still here in California. All of the comparable properties would have the same types of higher rates though. Again, I am not familiar with the commercial side of the business but as an appraiser I did have to learn the theory and on residential property you use a gross rent multiplier to provide an income approach to value. GRMS's in California can run from the high 200's to mid 300's. This would translate to roughly 16 to 30 times annual gross rent. I am back to finding out if 8 times gross rent is a valid indicator in your market or just something your client heard somewhere.

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Carolyn Gjerde-Tu

Davis CA Real Estate
Granite Bay Real Estate Sacramento Real Estate

I do commercial multifamily and that 8x or 10x is what carolyn is referring to. Some folks use the GRM (gross rent multiplier) as a back of the napkin estimate on value for the property. It will of course vary by region and property class.

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Austin Texas Real Estate | Coldwell Banker Austin | Austin Texas Real Estate