Are my expectations realistic for my Multi unit offers?

[Howie Baker]

Greetings B.P.,

I am making offers on 20+ unit apartment buildings in central California.  I am working as an independent contractor working alongside a real estate firm that is looking for B-C properties of the 20 unit or higher variety preferably with a value add component to the deal.  I am using their spreadsheet underwriting template and our goal is to get to an eight percent cash on cash return for our private investors who are funding the deal.  Certainly we hope as we successfully manage our properties that we will see an even better performance by these properties improving our cash on cash return for everyone.

The big challenge is as I do my underwriting I am finding that the asking prices of the buildings will return a very slim cash on cash return (some as low as 1.5-2%).  When I submit my offer that is justified by our needs of certain levels of return on our investment I am looking at offers hundreds of thousands of dollars below asking price.  I am also being told that multiple offers near asking price are being received by the seller.

My questions are:

1.  Who can buy these properties for the three to five million dollar asking prices and not see any cash on cash return?  Or in other words who am I competing against?

2.  Am I competing against all cash buyers and am I out of the game because I can't come close to their offers?

Any input and ideas would be greatly appreciated!

Howie