Assistance requested on deal analysis

[Doug Caminita]

Hello - 

I am looking for some assistance in reviewing the financials for a 10-plex deal in Oklahoma City, OK.
What am I missing? Is this deal worth pursuing? 

Details:

Sales Price: $750,000
Seller Offer: $5,000 in closing cost
Class: B+

Rents: $7,695 (100% Occupancy)
Repairs: $12,425 (Immediate)
            $36,000 (Future - Furnace replacement)
Property Management: 8% of rents
Taxes: $9,000/yr
Insurance: $6,000/yr

Financing Terms: 20% down, 30 years, 7%
Monthly payment: $5,241

Annual Rents: $92,340
Loan Repayment: $62,892
Property managment (8%): $7,387
Vacany (10%): $9,234
CapEx (10%): $9,234
Net cash flow: $3,593

[Jaysen Medhurst]

@Doug Caminita, a lot more work to do, but this may have legs.

A few things to start:

1. Your Vacancy Loss might be a touch high. I use 8%, but this is very localized.
2. What about repairs? I'd use 5%.
3. Can you do better than 7% on your loan. That's high, even for 30 year.
4. Where are you getting the $63K debt service number? I get ~$48k/year, assuming 20% down.
5. What about utilities? It sounds like there is one furnace for heat and HW, so you're paying those costs. There must be some house electric for hallway lights or similar.
6. Lawn care and snow removal? Will this be handled by the PM?

WITH STILL A LOT OF HOLES IN YOUR NUMBERS: I see the NOI ~$66k. That works out to a Cap Rate of 8.8%, which seems pretty solid for a B+ property. So this is ~$18k/year cash flow. If you can get a loan closer to 5%, you can get ~$27k. That's a 16% CoC ROI on your down payment and initial repairs.

What are the opportunities to push rents or drive down expenses? I'd look into using the $36k you have earmarked for a new furnace to split out the utilities. 

Once you take into account the missing utilities expenses, your cap rate will go down. That can actually be a plus, if you get the tenants paying for utilities, that's even more value you're adding with the improved NOI.