Seeking Advice! How Much Should I Offer for the Remaining 2 Units in the Building?

[Account Closed]

Hi Everyone,

I recently purchased the 4th unit in a 6plex and now I'm considering buying the remaining 2 units. So far, I paid below market rates because the building was severely under managed. Now, the other 2 owners know I want to buy their units so I anticipate they will be asking for a premium. I could really use some guidance on how to approach this.

To provide some context, the building is in a premium location, with easy access to lakes, restaurants, bars, grocery stores, and public transportation. I've recently had the roof replaced and fully updated the common areas.

Here's a breakdown of the situation: The units are currently marketed as furnished rentals (cashflow well), and based on the current income of the 4 units I own, I anticipate that all 6 units combined will gross $182,400 annually. That is considering 15% vacancy and pricing seasonality. I currently manage the property so, I know that the operating expenses amount to $67,204 annually.

I've done some research and found that the cap rate in our area typically falls between 7-8%. Considering the building is still legally set up as condos and they are rented at much above market rates, I'm wondering if I could still demand $1.4 million for it? will lender consider actual rent roll or will they be using market rates? If they do consider market rates, that means I have a huge margin (my basis $705K) and I can pay any price to buy out the remaining 2 units? Market rate is $190k per unit.

I'm really excited about the potential of this investment, but I want to ensure that I'm making sound financial decisions. I am also fine with keeping only 4 cash flowing units and not overpay. Any insights or advice you could offer would be greatly appreciated.

Thank you in advance for your help!

[Bill B.]

I’ve never seen such a small building with individual owners. Does it fall under the same rules as large buildings where owner/occupant buyers won’t be able to get a loan because half or more of the units are rentals? That may give you a leg up if you are a cash buyer or using irregular financing.