Help me analyzer a small apartment Owner Financing Deal

[Nandy B.]

A small apartment for sale in the most desirable area of town. Sales Price 750000.00. New apartments are being built in the area going for $250,000+ for 1b townhouses (bigger). The numbers do not make sense at all as a LTR (long term rental) but as a STR (short term rental) they do not look bad at all. I currently own a SF-STR in the area that makes 3X what I would get for a LTR monthly rent. Regulations were passed recently banning STR in the city except in this zip code. The area is commercially zoned as well. The seller is aware of the above so he is overpricing the apartment. Hence, It has been sitting on the market for over 400days.

Owner Financing OFFER!

I would like to make an owner financing or rent to own offer based on the numbers I have put together below.

HOW YOU CAN HELP

• Analyze the deal itself
• IF it’s reasonable, what offer should i make? How do i write it? -- open to a consultation call.

ABOUT ME

1. High debt to income ratio because of grad school
2. Have a great full-time job i love - scientist
3. Own 2 properties - the one i live in, and another i STR.
4. I'm new to real estate investing and would like to specialize in creative financing and STR or vacation rentals.
5. My whole family will be supporting this acquisition and the running of the STR business.

*******THE NUMBER*********

based on this spreadsheet - https://www.vertex42.com/ExcelTemplates/rental-cash-flow-analysis.html

NUMBERS THEY ARE Claiming

1. Gross Annual Income: $65,904
2. Gross Annual Expenses: $13,180
3. Insurance Expense: $5,720
4. Capitalization Rate: 6.27

LONG TERM RENTAL

MONTHLY OPERATING INCOME

1. Number of Units 8
2. Average Monthly Rent per Unit - LTR 680.00
3. Gross Monthly Operating Income 5,440.00

MONTHLY OPERATING EXPENSES

1. Property Management Fees 600.00
2. Repairs and Maintenance 33.33
3. Real Estate Taxes 2018 records 1,095.00
4. Rental Property Insurance 480.00
5. Homeowners/Property Association Fees 0
6. Replacement Reserve?- Utilities? -Pest Control? -Accounting and Legal? -Advertising?
7. Monthly Operating Expenses 2,208.33

Net Operating Income (NOI)

1. Total Gross Annual Operating Income 65,280.00
2. Total Gross Annual Operating Expense 26,500.00
3. Annual Net Operating Income 38,780.00

CAP RATE and VALUATION

1. Desired Capitalization Rate 6.27%
2. Property Valuation (Offer Price) 618,500.80
3. Actual Purchase Price 749,900.00
4. Actual Capitalization Rate 5.17%

SHORT TERM RENTAL

MONTHLY OPERATING INCOME STR

1. Number of Units 8
2. Average Monthly Rent per Unit - STR 2,000.00 very modest estimate
3. Gross Monthly Operating Income 16,000.00

MONTHLY OPERATING EXPENSE

1. Property Management Fees 600.00
2. Repairs and Maintenance 1,000.00
3. Real Estate Taxes 2018 records 1,095.00
4. Rental Property Insurance 480.00
5. Homeowners/Property Association Fees
6. Replacement Reserve 51.00
7. Utilities - Electrical, gas, trash, water sewage, internet, cable 4,080.00
8. Pest Control? -Accounting and Legal? -Advertising?
9. Monthly Operating Expenses 7,306.00

NOT INCLUDED - furnishing expense which would be about 3-5000 per unit.

They will be scaled up slowly as each tenant moves out.

Net Operating Income (NOI)

1. Total Gross Annual Operating Income 192,000.00
2. Total Gross Annual Operating Expense 87,672.00
3. Annual Net Operating Income 104,328.00

CAP RATE and VALUATION

1. Desired Capitalization Rate 6.27%
2. Property Valuation (Offer Price) 1,663,923.44
3. Actual Purchase Price 749,900.00
4. Actual Capitalization Rate 13.91%

I would like to request a seller financing deal - the max I’m open to paying for interest is 10% but I’m hoping to get around 6%

LOAN INFORMATION

1. Down Payment 79,000.00
2. Loan Amount 670,900.00
3. Acquisition Costs and Loan Fees 8,000.00
4. Length of Mortgage (years) 30
5. Annual Interest Rate 10.000%
6. Initial Investment 80,000.00
7. Monthly Mortgage Payment (PI) 5,887.63
8. Annual Interest 66,832.37
9. Annual Principal 3,724.39
10. Total Annual Debt Service 70,651.53

Cash Flow and ROI

1. Total Monthly Cash Flow (before taxes) 2,806.37
2. Total Annual Cash Flow (before taxes) 33,676.47
3. Cash on Cash Return (ROI) 42.10%

Thank you 

[Julie McCoy]

Great responses, @Nandy B.!  Love the attitude of attacking it head-on and if nothing else, using this property as a learning experience.  It's true that you'll never know until you ask, and the worst thing they can say is no!  

If you can, try to learn what his goals are with the sale - is he trying to sell it for the highest price possible?  Is he intending to sell so he can move into a bigger property?  Is he wanting to scale back and just wants to downsize his portfolio?  Given the price point it seems unlikely that he needs to sell quickly/needs the cash, but you never know.  If you're able to find out the seller's motivations for selling, you'll be in a better position to propose a deal that appeals to the seller as well as to you.