Tampa Multifamily Offer Price Question

[Seetha G]

Hello All

I am analyzing a 6plex property in Tampa, Florida.

Asking price is 700K. Current rents are 4800 and there is a potential to increase the rents up to 5400 monthly.

Sellers 2015, 2016 expenses were too high based on the schedule E as there was lot of repair work done.

If I have to calculate price at least for 6 Cap based on 2016 expenses, price is coming to 350K. Can you please suggest what should be done here?

Should I place offer at 350K based on previous years NOI or since there will not be so much maintenance work needed and potential to increase the rents, should I place an offer on pro forma which comes to around 450K?

Thanks!

Seetha.

[Marc C.]

You don't say who pays most utilities. But how does it look with some basic rules: 45% expenses (55% if you pay electricity and gas), current rents (not future). 

Asking: $700,000

Rents: $4800 x 12 = $57,600

Expenses: 50% of $57,600 = $28,800

NOI: $57,600 - $28,800 = $28,800

$28,800 / $700,000 = 4.1% cap rate

$28,800 / .075 = $384,000 based on 7.5% cap rate

As you can see, you've already wasted enough time on this "deal." Move on.