Feedback Please on 12 SFH for 2.4M

[Ethan Yuan]

Hi all,

I would like some feedback on this deal where the seller is selling his portfolio of 12 SFH all located along one street in the Dallas/FW area. All numbers are based of financial provided by the seller for past 12 months. All units are 850 sq ft. I admit the cap rate is a bit low and their listing price is high however, it is located in a good area. 20 mins away from downtown Dallas, with good future potential appreciation at the current Dallas growth rate.

Listing price - 2.4M (negotiable)

Gross Income - $16,670/month. 206,304/year

Vacancy - 10%

Expenses (repairs, taxes, utilities, insurance) - $27,314

NOI - $148,223

Cap rate - 6.18%

Considering these are SFH, would you still use ROI and cap rate or determine price based of comps. Would like to hear everybody's feedback. Thanks.

[John Chapman]

The brokers I know that handle these types of transactions use both a sales comps and NOI approach. Basically, look at both and kind of weigh them or something. However, I don't think you need to look any further since these numbers are horrible and.

An 850 square foot house?  How old are these things?  Guessing ancient and thus increased maintenance.  $200k/house for $1389/month in rent will lose money each month if you leverage at 75%.  

Finally, the seller's estimates on expense are off beyond reason.  Taxes are approximately 3% of value here.  Even if these these were on the tax roles for only $1.2 million, that's still $36,000/year, which is $9000 more than they are saying are for all expenses.