8 Unit complex - analysis / offer help

[Craig Montesano]

Hi BiggerPockets

This property is currently off the market. Seller is supposed to be working a number up for me....

Here is the info:

2 brick buildings each with 4 units. Kitchen, living room, bathroom downstairs with one bedroom upstairs.

Currently there are 0 vacancies.

Rents - $530 x 8 = $4,240 / month

Monthly Expenses
mgmt fee - $275
Common Electric - $20
RE taxes - $500
Dumpster - $103
Sewer - $336
Insurance - $160

Still not sure what I am going to do for financing. Might throw seller financing out there and see what happens. The downpayment will be rally tough to come up with. I could use our heloc on our primary residence but Im not sure if I want to put our home at risk???

Have talked to the local banks about commercial loans and to be honest they kind of confuse me. I have only dealt with single family homes so I currently have fixed mortgages.

I desire a CAP rate of 10%
That beign said NOI / desired cap rate = selling cost. Is this correct?

NOI=$34,152
$34,152/10% = $341,520

From the local market values I am thinking a good price would be in the $320s.

Am I doing any of this right or am I all wet?? LOL

Any help and input is GREATLY appreciated.

Craig

[Joel Owens]

Assuming your rents are market rate which you always have to question coming from a seller (they could have given waiver of security deposit or first months rent free or half off or have a free month of rent at the end of the lease or middle of the lease etc.) All of those situations will bring down actual rents from income valuation purposes.

I don't care about currently zero vacancies. What has the property done in performing the last 6 to 12 months?? It is easy to puff a property and get 100% full for a month or two and then dump a problem to a buyer. 6 to 12 months of proven occupancy or longer and payments is the real measuring stick that should be used for averaging.

I see landlord pays some utilities. In this case go 60% costs.

530 X 8 = 4,240 X 12 += 50,880 gross expected income

50,880 X .60 annual costs = 30,528
50,880 GEI - 30,528 annual costs = 20,352 NOI
20,352 NOI at a 10 cap purchase price is around 203,000

Way, way off from your 320's evaluation. This is NOT even including if there is deferred CAPEX with a property going in. You might find new roofs, windows, mechanicals are needed right now to the tune of 40,000. Your offer price then would be 163,000 going in.

Seller always like to underreport expenses and puff occupancy to paint a rosy picture. I find maybe 10 percent of the time sellers are being brutally honest with their numbers. The rest of the time they are looking for a sucker or a newbie buyer without experience.

Seller financing can be good if the terms and down payment are right. Many times the seller is wanting to dump a dog at a really high price in exchange for owner finance. Even if you bought zero down you would have about 8,000 to 10,000 in closing costs and inspections on a property that size.

I would pass based on what you are telling me.