Need some extra eyes on this deal

[Tony Karns]

Recently a realtor contacted me about this 9 Unit property. Once I received financial a lot of red flag went up. I reached out to the agent and he was able to setup a meeting between myself and the owner of the property. My experience so far has been with duplexes, so I want to get it right. Here are some of the numbers

Asking price: 900K

# units:9
Rent Monthly:5769 = 68886
Operating Expense: 35899
Operating Expense: 17345
NOI: 43148
Net Income: 25805
Calculated Cap Rate:5%

Red flags ( my view point open to different thoughts)

1-owner is calculating late fees as income in the rolling 12

Question: Is calculating late fees as income when marketing you property normal practice?

2- rental income varies significantly on a month to month basis. Some times the rent income is 2k above other months 1k below the expected rental income.

Question: This is a major topic that I will explore with the owner. The financial give no explanation.

3-Owner appears to be calculating electrical payment as income. As far as I know the property appears to have a single meeting and the owner is just charging for the electrical bill that he receives. Not sure how this is considered income worth  adding to your rent roll when all you are doing is billing back the tenants for what you are charged.

Question: Can the money received from billing your tenants for an electric bill your receive monthly be counted as income? Can the Electricity be billed via RUBS to tenants in the same way water is?

4-Insurance coverage on the property in the rolling 12 is paid monthly for 3 months, then is missed for a few, then a large payment mid year and none for the remainder .

5-Recurring charges monthly for paint, HVAC, and building material and supplies

6-Owner pays water, and gas.Also there appear to be a charge for meter reading monthly ( my view is that I would try and get the tenant to pay this stuff on their own or ensure i have a bill back process.)

7-Owner appears to also absorbing tenants credit check fee

8-Unallocated Prepay is being counted as income ( not sure what the owner is referring to)

With the owner willing to sit down and talk with me, I think that I have a chance to show him why i can not buy at his asking price and maybe get him to consider an offer significantly below what his asking price currently is because I am estimating about 200K in remodel for the property in order to raise rents to comps in the vicinity. I am unable to post the proforma info here, but everything above is from Profits and Loss statement sheet. Please share you thoughts.