Purchase price in relation to current rents

[Nicholas Kitchen]

I am looking at a 10 unit property that is listed for $350k, being advertised as a 10% CAP.

I had the listing broker send me a T12 and actual expenses. He also sent me a pro forma. The pro forma has annual gross income of $48k (rents at $400 each) with $12k expenses (including property management), so an NOI of about $36k. Okay that's cool. But looking at the actual T12, the monthly rents show $2390 a month with 3 vacancies.

My question is ... well, for one, this seems like somebody trying to pull a fast one ... do you put in an offer based on the current rent with the 3 vacancies? If so, it seems as if the property should really be valued closer to $170k.

I'd like to know your thoughts.

Thanks in advance!

[Nicholas Kitchen]

Thanks for the response Jon! I figured as much, but started to second guess myself because they are advertising this as a 9% CAP, which is blatantly false. If they want to sell it at a 9% CAP, according to my calculations it would be closer to $150k, not $350k.

$29k gross, 7% vacancy, $13k expenses, NOI of $14k

Hence why I had to come on here and ask. Seems waayyyyyyy off.