New please help me with these numbers

[Marvin Briscoe]

Hello, new here to BP and to REI. only been looking to actively get into RE in the past month or so. I have two deals I'm looking at and the numbers are hugely different on each, so I'm looking for an outside perspective. I've been reading articles and other forum posts for weeks now and have been trying to implement the knowledge I've gained from all of you. The one thing I'm still not clear on is Cap Rate. I realize the Cap Rate is basically only useful locally, but when does the potential for problem outweigh the Cap Rate.

For example;

deal #1 - 4 unit apartment building priced at $29,000.

after figuring in expenses, and a 25% vacancy rate it has a cap rate at 28% (32% if we can get it at our offer of $25,000)

Red flags - we were originally looking at this building in a package deal with a house converted into 3 apartments. The inspector walked away after 45mins at that property due to all the foundation and electrical problems. He said he didn't want the liability of writing up a report on such a house and potentially missing something. The inspector told us he wouldn't/couldn't inspect this 4 unit building due to being on a slab (can't inspect foundation/plumbing so it would just be electrical and roof, which is new).  Has us a bit spooked.

deal #2 - 12 unit apartment with laundry on site priced at $300,000 (on market for 866 days) planning to offer less

after figuring in expenses and 20% vacancy rate cap rate is at 9.29%

These buildings are within blocks of each other.  the 12 unit building is 20 years old, while the 4 unit is 80. I think start small with the 4 unit and build from there, spouse thinks go big or go home.  I'm worried about the potential for repair expenses on the 4 unit, but nothing guarantees no repairs on the 12 unit so I don't see it as safer.  I'm looking for an experienced opinion.  Is the greater outlay of money for the newer buildings worth it? or do we stick with what we can manage without the huge loan and build slower?

[Justin Tahilramani]

@Marvin Briscoe - There are so many red flags here that I don't know where to start! You state that you are new to real estate - why are you looking at multi-unit disaster properties? Are you a contractor by trade? 

Go slower! Start out with a SOLID duplex or triplex before getting into a tear-down 4-plex.

Just my 2 cents.