Cash flow numbers seem low - What am I missing?

[Nick Rose]

I've begun poking around and looking at relatively small (8-15 unit, <700K) mult-unit apartment complex units.   Initially, the numbers don't look all that great.  Purely an example, I chose a property on loopnet.  This one has a high cap rate of nearly 10%.  Most have lower advertised cap rates.

http://www.loopnet.com/Listing/19631386/1260-McDiv...

I'll be optimistic and say that NOI they list is accurate at 50K.

Rent = 79,500 /year

NOI = 50K

Debt service payment/year (25% down, 5.5%, 20 amort.) = 26K

Capital expense fund/year = 6K

Cash flow then is 18K per year. I wouldn't be surprised if the advertized NOI does not include a management fee, but I'll assume it does.

16K per year after investing 85K loan down payment for the loan results in an 16.9% cash-cash return.  Not a horrible return, but this is also assuming there are no bumps in the road.  That 16.6% could easily turn into low teens.  Most units are even lower cap rates which makes number look even worse.  

Is my high level analysis way off?  I had a conversation with a commercial real estate broker that is a family friend and he was quite pessimistic on the topic of purchasing an apartment complex. His thought is iff I have property management I won't make any money on the deals unless I pay all cash.   

[Chris Soignier]

Expenses of $20K look very low to me, which implies that the owner may have been doing a lot of things (PM, repairs, etc.) that should have been outsourced, or books are inaccurate.     Quite frankly, I'm skeptical of any deal I see on loopnet, since the best ones get scooped up before they hit it.