Multi unit for sale, how do I value it?

[Ronda Bogdanovic]

Hi everyone, I need help figuring out the valuation on a multi unit apartment complex. It's a 26 unit built in 1955. 14 units have been remodeled at a cost of $100,000.  Asking price is $1,350,000.

Income from rent is $12,332 a month. Taxes are $8167 a year. Insurance is $987 a month. Owner pays for the water. Grounds maintenance is $500 a year. I'm looking at it tomorrow but after looking at the financials I'm thinking it's not a good deal. 

The numbers they gave me are

Total Income  = $76,792

Total expenses= $61,161

Net income=  $15,630

They show a interest payment a month of $3633 but are not accounting for any other loan. Also they are paying a management company $1092 a month. I would manage it myself.

What do you think? Pass? Hoe should I figure the true value? Do I base it on cash flow only?

Thanks in advance!

Ronda

[Account Closed]

@Ronda Bogdanovic - Based on the NOI of $15k, the property is offered at a 1.2% cap rate which doesn't make sense. The expenses seem too high and I believe principal and/or interest payments are included in your total expenses. In determining the current value of the property, you'll want to include all expenses related to the operations of the property (administration, marketing, maintenance/repairs, grounds, payroll, management, utilities, insurance, real estate taxes, and reserves). You need to include a management fee whether you manage it or not. Your time is worth something, right? Plus, if you decide at a later date you don't want to manage it, this needs to be built in. If the operating expesnes aren't reasonable, you'll need to make adjustments. Also, make sure to assume a reasonable vacancy rate.

Effective gross income - operating expenses = NOI

Take the NOI and divide it by the asking price. What is the cap rate? Is it reasonable for the area? Does it meet your requirements? Is the price per unit reasonable for an asset of this quality in the area?

Overall, it's tough to tell if this is a good deal based on the limited information.  PM me if you want me to clarify anything.