Shafiq Hirani breaks down why buyers value rental properties lower than sellers expect. Lenders apply four standard adjustments: they assume 5% vacancy instead of 2%, add a 3-4% management fee even if you self-manage, require $250-$300 per unit yearly for reserves, and only count rent backed by signed leases or bank deposits.
That is not a buyer being difficult. That is set-and-forget ownership showing up in the one document that decides your price. He makes all 4, every time. 1. Vacancy. You might be running at 2%. He is going to underwrite 5% because that is what his lender requires. That gap is pure lost income on paper. 2. Management fee. 3 to 4% of collected income, added as an expense. And here is the part that stings: he adds it even if you self-manage and have never paid a dollar of it. His logic is simple: he may not manage it himself, and his lender assumes he will not. 3. Replacement reserves. $250 to $300 per unit per year, set aside for roofs, boilers, and turnover. Most small owners have never booked a reserve line in their lives. The buyer books it for you, or anything he cannot verify. If an income line isn't backed by a signed lease or a bank deposit, it doesn't exist in his model. Not because he thinks you are lying, but because his lender will not fund on your word.
