I put together north of 100 broker opinions of value and buyside analyses last year. Duplexes to 50 unit buildings across San Diego County. That’s roughly two a week, every week, for an entire year. At this point the process is almost muscle memory. Pull the rent roll, run the comps, model the expenses, see what falls out.
I’ve been doing this for three years now. I’m not discovering anything new. But some of the same patterns kept showing up last year and they felt louder than before. Figured I’d write them down.
Sellers are still anchored to outdated pricing and it’s the biggest friction point in the market.
I gave a BOV to an owner in Logan Heights recently. My number came in around $2.3 million. He was expecting $3 million. That conversation was not fun for either of us. His number wasn’t made up. It was based on BOV’s he received from other brokers a few years ago. But the market has shifted in multiple ways since then. Rates more than doubled. Rent growth has been basically flat. And the macro environment has introduced enough uncertainty that buyers are underwriting more conservatively across the board. All of that compresses values, and it shows up in what buyers are willing to pay today.
I have some version of this conversation almost every month. And I get it. Nobody wants to hear their building is worth less than it was. But the sellers who are actually closing deals right now have accepted where things stand. The ones still anchored to old pricing are sitting on stale listings that aren’t going anywhere.
A lot of owners have no idea how much their below market rents are costing them.
This is the one that gets to me. I talk to mom and pop landlords who have owned their buildings 15, 20 years. They know it’s San Diego. They know real estate here holds value. They’re right about that. But “I own in San Diego” doesn’t do the work they think it does when it comes to valuation.
Buildings with 5 or more units trade on income. If you have long term tenants paying $1,400 on units that would rent for $2,200 after turnover, your building’s income does not reflect its potential. And a buyer is not paying you for potential. They’re paying based on what the rents are today, then discounting for the time and money it takes to close that gap.
I lost count of how many rent rolls I opened last year where rents were $500, $800, sometimes $1,000+ per unit below market. It’s everywhere. The owner sees a building with no vacancy and checks coming in every month and figures everything is fine. But the second you want to sell or refi, those below market rents become a real problem that directly impacts what your property is worth.
The buyers who are active right now want exactly those buildings.
Many of the buyers I work with aren’t looking for stabilized properties with market rents and a fresh coat of paint. They want the opposite. Deferred maintenance. High vacancy. Low rents. Good location.
Buy at a discount on current income. Negotiate cash for keys with below market tenants. Renovate units. Push rents to market. Add density if the lot supports it. A few years later the building is a completely different asset on paper.
Not everyone can execute this. You need capital reserves, contractor relationships, and honestly you need access to deal flow before it hits the open market. The buyers who understand this are building broker relationships right now while the rest of the market sits on the sidelines waiting for rates to drop. By the time rates drop, those relationships are already built and the deals are already spoken for.
The market is more nuanced than most people want it to be right now. It’s not one thing. It depends on your building, your rents, your debt, and what you’re trying to accomplish. But after looking at 100+ properties last year, the one thing I can say with confidence is that the owners who know their real numbers are in a much better position than the ones guessing.
