Sanity check on this small apartment complex in South Florida please!

[Aly W.]

Hi all,

For those unfamiliar with the South Florida (east coast) market, the influx of foreign investors with cash seems to have seriously skewed the evaluation criteria of properties. 

We just came back from the area, and looked at several small apartment complexes. This one looked promising because the seller paid cash for it ~$600K a year ago. 8 units in a great area. It was built in the 1940s and the seller is slowly renovating it unit by unit, and has it listed for $1.2M. According to the listing agent, the seller lives in South America and his brother lives in South Florida and manages the property - he's heading back to SA himself and now the seller just wants out.

There's no way at the price he's asking that this property makes any sense from a cash flow angle, unless my numbers are really out of whack. I'd just like a sanity check on why this property isn't worth more than $410K - my agent says the foreign investors there aren't looking for cash flow, just a place to park their money since their own government is so unstable, so they don't purchase with cash flow in mind. 

Having said all that, are my calculations in the ballpark if this was a normal market?

List price - $1.2M

Assessed value - $434K

Gross monthly rental income per the agent is $6160. There is 1 vacant unit being renovated with new rental price unknown, 7 tenants most without leases whose rent can't be verified but only stated, and most without security deposits. Coin op laundry supposedly generates $250 a month.

If I stopped there, this property doesn't meet the 2% rule, or even the 1% rule at that list price.

Owner paid cash and does not have insurance. Not even liability. The brother supposedly does all the maintenance, pest control and property management for free. 

Taxes would be $14K, up from $7400 the seller is paying, based on list price

Garbage annually - $3K

Lawn care annually - $1000 (lawn care is actually quite cheap in South Florida)

Electric for common hallways and laundry room - $2400 annually

Water/sewer landlord pays - $4K annually

Insurance estimated - $6K (probably too low)

Paying misc. maintenance, paying a management company and paying pest control for what the brother supposedly does for free - my estimate would be nearly $10K a year, probably more

My NOI based on estimates is about $30K annually, not including debt service.

That's about $2600 a month for NOI, and for a DCR of 1.25, I calculated about $400 - $500 net profit per month after debt service, give or take.

My calculations on paper are much more detailed but still have a lot of estimates. Some math errors may be present ;) 

Any feedback on the calcs would be very much appreciated!