Determining Price on Multi Unit Property in CT

[Greg Murphy]

Hi, I’m looking for feedback on a deal I’m working on. 7 units ( all 1 bedroom) in CT. Generates $4500 per month. Tenants pay utilities ( all electric). Property in good shape. Asking price is $320,000. My offer of $290,000 has been turned down. I feel in a year or 2 I could get the rents up my 10%. Thanks Greg.

[Noah Krietsch]

Hi Greg,

Would you call this property an A, B, or C class? Do you have the Trailing 12 expenses of the prop?

Based on the income number you gave ($4500), that's annual income of $54k per year. Assume 5% vacancy (which is low for this small number of units, but let's use it), your annual income goes to $51.3k. 

Assume a 50% expense ratio (which could be less since tenants pay all utilities, but let's use it for now), so your annual expenses would be $25.6k.

NOI comes to $25.6k per year. At $320k asking price, that yields an 8% Cap rate. Your rejected $290k offer would have yielded 8.85% Cap rate.

I don't know your market, but pretty much everywhere in the whole country, it's getting harder and harder to find 8 caps. So I don't think the seller's asking price is out of line. You could try to counter at $300k? But i wouldn't feel bad about paying full asking price at all. Especially since you think you can increase rents 10%.