Cap rate? What’s your thoughts?

[Ryan Davidson]

Hello fellow BPers, I have found properties I’m interested in. 1st is 2 buildings 4-1bed each, 2nd is 2 building 4-1bed and 1 building with 3 2bed. All five buildings sale price is $500,000. Realtor says they have come to value on cap rate of around 17-18%. About half are vacant so there is good value add there. Market rents are probably accurate at $450/575. But out of the 6 units I walked through they all need rehab. My initial estimate is $5000 per, up to $10000 on some. I think that’s pretty conservative. At monthly gross of $8925 if all units are rented, I’m having trouble finding their cap of 17%. $8925*12= 107,100/500,000=21%. That’s not taking anything out for tax, insurance, repairs, PM, vacancy like it should. Or allowing for the 100-200k in repairs. 5000 tax, 3000 insurance and 20% for repairs, vacancy and PM is 79,280/500,000=15.8% so that’s closer. I have read and researched many different ways to value multi units, but nothing seams to talk on if repairs needed. I’m comfortable buying a 2% property if rent ready, subtract the conservative 100k and I think at 400k these would cash flow and be a good investment. But then what’s it worth? Or using the 70% -repairs. 500k-70%=350. Subtract 100k for repairs-now I’m really sold. Where do I sign? Does anyone use the 1% for apartments? I can’t see the value being 900k even after rehab. Cap rate is difficult to find in smaller communities it seams (not that much product to compare). Looking for some advice on good offer number. Also how to come up with legitimate value. This is in a smaller Indiana community of about 5000 people. Manufacturing jobs around plus larger city within 30 minutes. Not a booming town, but not poverty stricken either it doesn’t seam. I would give it a C/C- building in C/C+ neighborhood, one on a lake and the other close to downtown. Thanks for any info, good luck to all.