Lost a Deal at Full Price

[David Wright]

So, I made a full price offer on an apartment complex last week and lost the deal.  Here are the details:

19 units, 11 need complete rehab (down to the studs). 7 units rented month to month at an average of 395/unit. 1 unit rent ready. All units 1 bed/1 bath. Asking price was 160k, I offered 160k with a contingency of 80% financing.  

Current expenses provided by seller:

• 3000 tax
• 3200 insurance
• 6900 utilities

I add in 3000 for repairs (5%) for current 8 units, 1644 for vacancy (5%), and 3288 property management for a grand total of 19729 operating expenses. NOI is $13151, which would be an 8.2 cap (this is a 12 cap neighborhood), and debt service would be 6400 with a 30 year am, 5% interest. If I did nothing but kept the current tenants and rents, I would cashflow 6755, which is about 16% CCR after I account for closing costs and reserves. Market rates are 550, so there would be a big upside to raising the rents, along with renting out the 8th unit. So, based on these numbers I offered full price.

And I lost the deal. I spoke with the agent about why, and she said there was a second offer for cash - a lower offer, but it was cash and cash is king. Additionally, I *think* my offer was suspect because I submitted a LOI instead of a PA, and I probably came across as a newbie on the phone, so they may have wondered if I would actually close.

Lessons learned.  Does anyone else have any insight on why I might have lost the deal?