Am I missing something on this $700,000 Property?

[Manuel Scott]

Hey guys,

I'm about to put a 20-unit property under contract, and would appreciate your insight.

The property consists of 20 units, fully rented in a C area. 15 people on waiting list. I viewed the property with the manager, and the units are nice. Most units bring in $400/mo; the few that have been renovated are pulling in $600/mo. So there appears to be a nice value-add opportunity here. 

Asking, $750k, but appraised at $650k.

Income: $9,500/mo

Expenses: $2,900/mo (insurance, taxes, maintenance, property manager, etc)

Debt service: $2800/mo (20% down, 4% interest-rate, 30 yr)

Cash Flow: $3,800/mo

It's been operated like a mom-n-pop property, so we don't have rent rolls yet, but from what I have listed above, the numbers seem to work, even at asking.  

This will have been our biggest investment so far (we have a quad and a couple SFR), but want to avoid any blunders. Please help.

Manny

[Joel Owens]

"The property consists of 20 units, fully rented in a C area. 15 people on waiting list. I viewed the property with the manager, and the units are nice. Most units bring in $400/mo; the few that have been renovated are pulling in $600/mo. So there appears to be a nice value-add opportunity here."

This means absolutely nothing whatsoever.

How LONG has the property been stabilized? Has it been 80% full the last 2 years with the tenants paying on time every month??

Sounds like this is a "pump and dump" property to me. Marginal area, fill it up fast, claim low expenses, and sell the upside potential at an over inflated price.

Wanting 100k above recent appraisal is ridiculous. Those expense numbers are laughable they gave you. Does the owner pay water for the tenants? If so use 60% or more of gross expected income for expenses. The newly rehabbed units with higher rents what is the list of capital improvements? Did they just do new cabinets and carpet or replace electrical,plumbing,etc.?

Did you view ALL the units or the ones the manager showed you that were newly rehabbed with the better tenants they have? Sellers like to show the best food forward and hide the worst parts of the complex.

Was there any waiving of security deposits,first months rent free, or half off as a special to get tenants in? If so the actual rent is lower.

Example 450 a month X 12 = 5,400 a unit. one month free the real rent is 412.50 a month.