8 unit property - Would this be a good deal?

[Sebastian Marroquin]

What do you think? Good deal or a pass? 

The numbers: 

Seller wants $2 million dollars. 

6 units are 1 bedroom and 1 bath and rents are under market by around $500 to $600 each. 

There are 2 : 2 bedroom and 1 bath units: One rented out and the other will be vacant at close of escrow. 

Total rents for : 6 1 beds and 1 2 bed: $10,100 

And the vacant unit would rent out for $2k 

As is with out doing anything to the property, total rents would be $12,100. 

(Currently, assuming a 30% overhead : or 

$12,100 x 12 months: gross rents annually- $145,200 minus 30% (operating) : $101,640 net income. 

At $2 million : that would be a 5% CAP rate (my commercial co-worker says that most are selling at a 3% or 4% CAP right now).

Over time, what would be the value if you increased rents to market rents:

Conservative numbers: 1 bedroom : $1800 (can go to $1950) x 6 units : $10,800 

2 bedroom: $2k (could go to $2300 / $2500 )  x 2 units : $4k 

Total pro-forma (estimate new rents): $14,800  (times 12 months: $177,600 minus 30% : 

$124,320 (NET) 

Future value : 

@ 4% CAP : $3.108 million

@ 3% CAP: $4.144 million

Does buying this property at $2 million make sense? 

(I usually do residential deals between 1 and 4 units, so looking to see if you think I am missing any info?) 

30% Operating expenses seems generous to me, as most commercial agents have told me that these could be brought down to about 27% of gross rents. 

Units will need about $25k to $30k each (8 units ) so that would be about $240k 

Plumbing has been replaced to copper in the last 10 years. 

Roof is also about 10 to 15 years old. 

AC : building has wall units. (I am getting more info about rents, leases, and expenses). 

Thanks for reading