Determining Current Value Based on Rent Rolls and Condition?

[Philip Bashaw]

Hello BP!

I am very interested in multifamily investing. Initially, I want to start with a small apartment building with 12-20 units in a good area with high occupancy rates. I live in Atlanta, GA where there are loads of small apartment buildings that are just that, like the building I currently live in. It's an 18 unit building of 2BR/1BA units in a great area with great schools. The owner does the absolute bare minimum and the management company seems to have been instructed to ignore all requests about fixing anything. Rents are $300 below market rate so it stays occupied and once people get over the excitement of having found a bargain, they realize what a dump this place is. 

Being a savvy real estate investor now, I think I've figured out why the owner is letting the building decline. Property taxes and depreciation! I looked at the taxes paid over the last few years and they used to be a lot higher along with the assessed value. With that being said, I want to know a good way to approach the owner with an offer based on the condition of the property, it's depreciated value and below market rents. FYI, the property is not for sale at this time and the same person has owned it for several years.

Is there a formula to determine what a fair offer is for a small, rundown apartment building in an excellent neighborhood? I want to make an offer and even suggest owner financing for 12-24 months while I build up cash by flipping houses. My new strategy is to fix and flip houses, take those profits and invest in small apartment buildings.