Advice on Multi-Family Property Opportunity

[Dan Galvan]

This ad is for a property that I'm familiar with regarding location/address.

Ad: Older 4 plex, approx 5000sqft, needs updating, selling as is. Selling due to health issues. Asking $259,000 negotiable. Email for details.

Contacted the sellers regarding numbers and this is what they provided:

Rents are 4x950=$3800 Monthly

HOA dues for all 4 units: $580

Owner pays for water: About $400 month

Yearly/Annual taxes are $5362 or about $447 monthly

Property Insurance: $309 per unit, so 309x4=$1,236 per year or $103 per month

Property is currently bank financed so the owners can not provide owner financing.  

Final Numbers:

$3,800 - $580 -$400 - $447 - $103 = $2270 monthly cash flow.  

My thoughts: 

1. Owners really want to sell and according to their ad, are willing to negotiate on price.

2. According to owners, property has no damage, just needs some updating. (will visit property and inspect myself prior to making an offers).

Any thoughts, advice or recommendations would be great!!!!!

Thanks,

Dan

[Matt Popilek]

You are missing a couple of expenses - Maintenance, and Management cost.

I usually go 14% FR on the Maintenance if the property is well maintained - you could go higher

Property management can vary so say 10% or more.

In my initial review I just use simple numbers until I get that actual P&L.

I would take $3800/2= 1900*12 = 22,800/259,000 = 8.8% Cap Rate 

If it was me I would be offering at a 12% cap rate to start, and work my way up to hopefully no more than a 10% cap rate. 22800/.12 = $190k up to $228K

This is all subjective, but if you can get this deal at a 10% cap rate you would have room to work if you get below  a 10% cap rate that may be fine as well depending on the market the property is in.