New to CRE and Need input on potential 16-unit

[Randal McLeaird]

Hi everyone,

I've been dealing only with resi deals and happened to be on craigslist the other day posting some of my rentals and came across a post. Called the guy and found out he has a a couple multi-family properties within a close proximity of each other.

What I know:
16-unit
9 occupied
Avg rent/unit $450 includes water/elec (per owner) - I've only talked with one of the tenants.

When I work out the NOI I'm taking the Gross potential rent - $86,400 and a 43% vacancy rate (in order to get actual figures) to yield Net rental income of $49k. My NOI on estimated operating expense figures is $16,000.

Seller wants $425k with $25k down and finance the rest.

At that price the cap rate is 3%!!! Absolutely not gonna happen. I don't know all there is about the class of properties but I know enough about the area to know its got to be a C or D. When I plug the numbers in for cap rate at 12% I get a value of $135k.

So, my question is, am I calculating this properly? I've seen multiple times in the forum posts something about a 50% rule...not sure how that works. I've got 3 CRE books on my desk I'm burning through as quickly as possible but I'd like some experienced feedback.

I'd like to get into commercial and probably won't do this deal but I'd like to start getting a better handle on it.

If this deal could make sense another way and be profitable, I'd love to hear suggestions. Obviously getting the other 7 units rented would be key but it still doesn't justify the current asking price. The only way to get even close to his asking price is to do a proforma deal taking into account the hypothetical rent on the remaining 7 units....does anyone in this forum actually do that??

And how do the financing terms play into the attractiveness of this deal. I just ran the numbers and if I can get the other 7 units rented and take a 10% vacancy (accurate or should it be higher?) I should cash flow around $2k/mo on my $25k investment...not the best return but not the worst either. My resi deals don't cash flow me that much for a $25k property. If I don't get any other units rented...then I'm in a troubled spot.

Thanks for all the help and advice.