MF prop evaluation

[Magesh R.]

I am looking at a potential 10-unit MF deal in Columbus, OH. Now, I have read about NOI, CAP rate etc and evaluating the purchase price based on cap-rate. But as I sat down with a spread sheet to plug the numbers in, I came up with these questions. Can experienced investors here throw some light on this?

PS: I don't yet have access to the previous years' operating data from the seller. It looks like I can only get access to that after I make an offer. But, I need that to come up with an offer price. Catch-22.

1. How do I determine the cap rate of that particular area? 

- I have tried to look in loopnet to look for similar properties but there aren't any like this. 

2. To my understanding, there have been no vacancies recently or in the last year(100% occupied) but Should I still factor 5% or so?

3. The property management company that I work with has come up with 12% + $3000 as their Fees to take care of the lawn, snow, collect rent etc. 

Not included in that are items like 

- Finding new leases when a unit becomes vacant

- Repairs and maintenance etc

4. Should I factor in Repairs and maintenance? If so , how much? Again, Since I don't have access to the operating data, I am thinking about 10% as the number. Is it too high or too low?

My agent has come up with 38k NOI. When I factor all the above factors, I am showing 29k NOI. What should I go with? Obviously the valuation is going to be very different based on which number I use.

Thanks in advance for all the help.

[Nancy L.]

If it were me, I'd probably review the NOI figures with my agent to resolve that discrepancy.

I'm also in Philly and would agree with @Ugochukwu Opara  that that prop management contract sounds high! Especially as they're charging you all those fees on top of the 12% rate! Perhaps this is standard in your area, but I'd definitely shop around if you haven't already. I self-manage, so am not experienced with property managers, however I would try my best to negotiate out the fee for finding a new tenant. I'd rather pay a slightly higher %. I would want my PM's goal to be the same as mine: find and keep good tenants. The finder's fee would seem to create a bit of a reverse incentive (or at least mitigate the PM's negative repercussions of losing a tenant). If anything I might skip this entirely and use an agent when needing a new tenant. 

Just a thought, your agent could perhaps put a contingency in your offer that would allow you to get out of the contract after seeing the operating expenses. Contingencies do weaken offers, but their purpose is to provide a safety net for what you might discover in due diligence.