First Commercial Property (8 Unit Multi-Family). Good investment?

[Juan Turner]

Hello BP!

I'm interested in your comments regarding the price for this property considering the current rents. The property is located in Montgomery, AL. The contract price is $274,500. The asking price was $280,000. I have approximately 2 weeks to complete inspections, receive contractor estimates and secure funding before locking in this deal or walking away, if necessary. The property has 6 of 8 units occupied. The rents are below market. However, the property is plagued with deferred maintenance and outdated cosmetics. The building was constructed in 1947. The 2 vacant units require approximately $18,000 to rehab.

My research indicates average rents for 2 bed/1 baths in the area is $650/mo x 8units =$5,200/mo x 12 = $62,400. The data on the spreadsheet below reflects actual rents for 6 of 8 units. Should I include rents for the 2 vacant units to determine if the numbers work for the purchase price?

My strategy is to immediately rehab the 2 units and have them available for rent 2 weeks after closing. I anticipate the remaining units will require $5-8,000 in rehab costs. My plan is to upgrade each unit and increase rents as each tenant's lease ends. Last, the property will need a roof as some of the upstairs units have minor leaks. My estimate for a roof is $8,000. The remaining calculations are below. The first group of numbers include over $18,000 in capital expenses and 2 vacant units. The second group of numbers reflect the property receiving rents at market value. I'm looking forward to your responses BP!

(8 Plex) $274,500 Contract Price. $251,300 Tax Value	YEAR 1
Gross Scheduled Income ($3290/mo) 6 of 8 units rented.	$39,480
Laundry ($75.00 x 12=$900.00	$900
Vacancy Allowance (10%)	$3,948
Total Operating Income	$36,432
Property Taxes	$1,872
Insurance	$2,000
Homeowners Association	$0
Capital Expenses (Maj Repairs/Upgrades) 10%	$18,950
Maintenance Reserve (6%)	$2,369
Property Management (10%)	$3,948
Lawn Maintenance	$1,200
Water and Sewer	$4,320
Total Operating Expenses	$34,659
Net Operating Income (NOI)	$1,773
Mortgage Expense (PI) (1389.00/mo) 7yr	$16,668
ANNUAL CASH FLOW	($14,895)
MONTHLY CASH FLOW	($1,241)

3206 Wellington Rd. (8 Plex) $274,500 Contract Price. $251,300 Tax Value	YEAR 2
Gross Scheduled Income ($5,200/mo) 8 of 8 units rented at $650/mo	$62,600
Vacancy Allowance (10%)	$6,260
Total Operating Income	$56,340
Property Taxes	$1,872
Insurance	$2,000
Homeowners Association	$0
Capital Expenses (Maj Repairs/Upgrades) 10%	$6,260
Maintenance Reserve (6%)	$3,756
Property Management (10%)	$6,260
Lawn Maintenance	$1,200
Water and Sewer	$4,320
Total Operating Expenses	$25,668
Net Operating Income (NOI)	$30,672
Mortgage Expense (PI) (1389.00/mo) 7yr	$16,668
ANNUAL CASH FLOW	$14,004
MONTHLY CASH FLOW	$1,167