Question about an 8 unit complex

[Kenneth Haynes]

We are looking at an 8 unit complex to purchase for a long term buy and hold. It would be our first multi-unit purchase. The seller wants $550K and the agent says the CAP rate is currently 7% and should be closer to 10% once the rents are brought up to the market rates.

Based on the NOI and the stated 7% cap rate, the property is only worth $300K. It IS grossly underperforming and once the rents are brought up to the market it should cash flow nicely but at the asking price, it will be a negative cash flow even if we could get financing.

Since I have to get financing, I don't think the lender is not going to give us $550K or anywhere near that based on the current financials. 

Based on my conversations with the agent, it seems he is either using residential property evaluation to come to a purchase price and doesn't understand how commercial properties are valued or he's basing the sale price off the proforma valuation.

We've gone back and forth and the agent doesn't think the seller is going go lower than $475K. At a $450K purchase price, we would barely break even assuming we could get financing. 

What are your thoughts? Should we offer $450K and break-even on entry? This is our first multi-unit. We have one other property that we purchased cash, so this is the first one we'd need to finance.