What would you pay for this property?

[Ryan Parnow]

I am looking to buy a small multi family in my area. I had this property sent to me by an agent that I am working with. He has all of the income and expenses but they haven’t determined a price yet. What would you pay for this property?

Annual income and expenses

Rent Income $50280

Laundry income $906

Vacancy $2514

Taxes $9008

Insurance $1430

Management $3017

Repairs $5028

Gas $572

Water $2391

Electric $562

Garbage $565

Lawn and snow $1980

Misc $325

Net $23,794

Thoughts?

[Ed Matson]

Assuming the income and expense numbers are correct (Some figures are clearly estimated as per cent of income, so go get the real actuals), you need to know the CAP rate for this geographic market and this class of property. If the NOI is really $24K and the CAP is 6%, then the property could be worth about $400K. But if its a lower quality property or in a lower quality area you will have a higher CAP rate. At an 8 CAP this property is worth only $300K. Also, does it have a substantial amount of CapEx required in the near term? Lastly, regardless of prevailing CAP rate, what return on your capital do you need? Will a 6 CAP meet your needs even if its appropriate for the market? Just because a property is fairly valued doesn't mean its a good deal for me. I am later in my career and value cash flow over potential long term appreciation or mortgage pay down, so if I can't reasonably expect a property to perform at an 8 CAP, I'm not interested. If i were 40, I would probably think differently.