What would you offer? 4unit. My first rental

[Matt Lindstrom]

I'm looking to take my first step into rei.  I have told everyone I know what I intend to do and  today my dad told me that a coworker of his wants to sell his 4 unit.  It is located in a nice area of Milwaukee.  I did a little research and he paid 315k in 2005.  He sent me an email stating the current assessed value at 234k and said make an offer. I am curious to here what some of you experienced investors have to say.  Here are some of the numbers I know.

Brick 4 unit

2 bed 1 bath units 

8 car off street parking

Appliances included

Newer water heaters and furnaces

$2700 gross monthly rent = 32400 per year

Minus 10% vacancy rate= 29160

Take 50% off for ballpark expenses = 14580

14580 @ 12% cap rate= $121500

Or 10% cap rate= $145800

I am figuring ballpark numbers to see if we would be in the same ballpark on price as to what I would be comfortable with.  He is looking for a cash sale or willing to do some seller financing which is helpful.  To me it seems that we would be off by quite a bit.  He claims to cash flow $700/month.  The only way I can figure that at the range I think he is looking to get is to not figure cap-ex, vacancy, property management, and normal maintenance.  Any input would be very helpful.  Thank you in advance.

[Joel Owens]

If it's a nicer area it might not go for a 10 cap in that area. 4 unit's might trade at a 7 cap or something.

60% expenses is usually when landlord pays utility and water. If landlord does not then 50% including vacancy as a guideline.

So would be 162,000 at  a 10 cap.

16,200 NOI / 234,000 = 7 cap sales price. So if no deferred problems this price might not be bad for the area.

How much money you put down determines your cash on cash return.  Are you thinking of living in one unit and rent out the rest??