Would you do this deal?

[Christopher Freeman]

RENTS
Unit 1		3 tenants ($715, $725, $725)		$2,165
Unit 2		2 tenants ($775, $775)		$1,550
Unit 3		1 tenant (since 2010)		$1,475
Unit 4		1 tenant		$2,000
		Monthly TOTAL		$7,190
		Annual TOTAL		$86,280
P & L (Pro Forma) Note: Cash vs. Accrual Basis
		Income		$86,280
		Expenses
		Utilities		$15,728
		Property Tax		$10,442
		Landscape/Snow Removal		$4,400
		Management Fees		$4,314
		Maintenance/Repair		$4,000
		Insurance		$2,091
		Trash		$864
		Net Income		$44,441

Owner values building at a 10% cap rate based on the above numbers. They are not taking into account physical/economic vacancy, and in my opinion they are low-balling management (5%) and maintenance (5%).

However, there is easy go-get from raising rents on unit 3 (+$500/month). There is also a moderately easy opportunity to turn the 2 bedroom into a 3 bedroom by finishing an attached "shed" area, which would add another $650-750/month.

The ask price is $444,100, and the seller is offering long term financing (at present point in negotiations, 30 year amortization with balloon in year 15) with low or no money down (potential to secure with a lien on another piece of property). We have not discussed rates, but I would expect something 4-5.5%

Building is in turnkey condition. All utilities are separate (though paid by landlord). Rents are at high end of what is possible in 3 of the 4 units. Our market has recently had several hundred new units added to inventory, however those units are priced substantially higher than even what this building generates.

Property tax rate is over 37/mil, and it is likely that the assessment would increase following the sale (not necessarily a full reversion, but it is a risk).

Note: I understand that properties under 5 units are not conventionally valued using the income approach, but there are reasons why I would consider doing so with this one.

Would you do this deal at $444,100? If not, what price would you feel comfortable with?