Deal Analysis: 1M MFH, Buy or Walk

[Mike Krieg]

Hey BP real estate geniuses, help me analyze this deal. Pick it apart! Buy or walk? or, what would you offer? 

16-unit building, growing population near big city..I offered 875k cash, but owner is stubborn at 1,080,000. Rents are too low and have room to grow after a rehab and new higher paying tenants are moved in. Plan = Close deal, and rehab; re-rent. All in for 1.1M, re-rent, target appraisal at 1.4M. REFI out all capital. Rent for 3-years and sell it for 1.5M. 

Here are the numbers:

Purchase Price: $975,000 (cash offer)

Capex: $125,000 (roof, resurface lot, unit upgrades)

Net rent potential after renovation = $153,000 ($12,750.00/month)

Target valuation after rent increase = 1.4M (7 cap)

Current Numbers

Net rents minus 5% vacancy = $124,830.00

Monthly costs: $3300.00 (increased owners stated by 20%)

Monthly NOI: $7102.00

(Current Value: Cap rate of 8.5% = 85,230/.08 = 1,065.375.00

Cash on Cash Return:

The monthly costs include:

7% Maintenance

6% Property Management

11.86% Property taxes (14,703/year)

6.7% Insurance

Lease Renewal