Too good to be true? Needing a 2nd option. 10 Unit multi family Pueblo, CO

[Alex Jacobson]

Looking for a fresh set of eyes to look at a rental analysis for a 10 unit efficiency apartment building in Pueblo, CO. 

COC ROI: 21.8%

CAP RATE: 11.3%

GRM: 61%

I used conservative estimates: 5% capital expenditures, maintenance and vacancy. (In my experience these will be less for the area.) and 7.5% interest rate and am still showing a healthy cash flow of $1,700 a month. 

 Is this too good to be true? I am also always looking for investor partners on deals as well.  

Thank you!

Analysis linked below: Bigger Pockets Rental analysis

[Evan Polaski]

Hi Alex, my few comments are:

Typically, but confirm with your lender, commercial loans will be 25%+ down. You underwrite to 20% down. Additionally, and almost more importantly, you need to know your lender's DSCR, since many commercial loans are limited by DSCR, not LTV (although an 11% cap rate is much higher than typical).

You have no reserves built into cash needs assumptions, which sounds risky to me, but I don't know the property or market.

Generally, my sentiment is the lower the rent, the more frequent and higher cost each turnover is.  At 5% vacancy, you are assuming a 5 of the 10 units will turn over each year.  At $1,500/turnover that is $7,500/dr just in turnover cost.  You budget has about $7k TOTAL in maintenance and capex combined. 

My general sentiment is this could be a good deal, but overall from my past experiences and not knowing this asset, I would expect to lower CoC return given more equity in and less cash flow, but as others noted, you still have reasonably good margin to work within.