Seeking Advice: Is $850K a Reasonable Offer for This Multifamily Property?

[Tayvion Payton]

I’m considering a 20-unit multifamily property listed at $1.6M, but the seller has indicated they’re willing to accept $1.25M. Here's a breakdown of the situation:

• Current Occupancy: 80% (16/20 units occupied).
• Current Gross Rent Roll: $14,265/month.
• Market Rent Potential: $17,665/month (100% occupancy).
• Renovation Needs: 15 units require full renovation ($10K/unit), 4 units are 75% renovated ($2.5K/unit), totaling $160K in renovation costs.
• Vacancy Loss: $41,820/year in lost income due to current vacancies.

Cap Rate Analysis

The seller lists the cap rate as 9.59%, but this is based on the projected NOI of $119,858 (assuming full occupancy and market rents). In its current state:

• Current NOI: $79,058 (based on 80% occupancy).
• Current Cap Rate (at $1.25M): 6.32%, reflecting the property’s as-is performance.
• Value at a 7.5% Cap Rate (Market): $1.05M, based on current NOI.

Given the renovations, vacancies, and risks tied to stabilizing the property, I’m considering offering $850K to reflect its current state and value-add potential. Does this approach seem reasonable, or am I undervaluing the property? I’d appreciate feedback from experienced investors!

[Tayvion Payton]

@Matthew Drouin 

The area around the property shows a median household income of $61,792 within a 1-mile radius. Using the 30% affordability rule, the monthly rent affordability for most households would be around $1,545. This puts the current market rents of $885–$925 per unit well within the affordable range, with room for modest increases post-renovation.

I’ve also reviewed competing properties in the area; apartments seem to be listed between 975 -1000, and houses are listed between 1300-1900. However, based on the zip code there are only 5 rentals available in the zip code.

There are Class A industrial projects underway and the development of a large retailer. The population within a 3-mile radius is 8640, 5 miles is 9500, and 10 miles is14,500. Crime is low. The property is located near the downtown area.

As far as the occupancy, I'm not sure yet of the reason for being at 80%.