advice on 20unit complex

[Joseph L.]

Hey guys,

Me and some friends found someone that wants to offload a 20 unit complex off market and just wanted to see what questions do you guys ask for a deal this size? Also I know that everyone has different cap rates they want but what would make this a good deal going forward?

Here are some questions i'll ask:
1.Why is the Owner Selling?
3.When was the last time mechanicals were updated?
4.Can the owner provide two years Schedule E's?
5.Can he provide a current rent roll and income expense statement?

Our pro-forma shows around 24K net cash flow before taxes and 9.1 cap rate. Units are 2/1 around ~820 sqft on average and owner says rents are $650. We are assuming 10% vacancy and $600 rents till we can actually see the rent roll and also including is a reserve for large capital(roof/painting/paving).

With these types of units that are for lower income people do you think 10% vacancy is to high/low? They have put around $150K in rehab to the property in the last two years and from my understanding he is tired of managing the property since he lives a county away. Market rents in the area are a little higher so we are hoping to raise them to around 700-750 with a little work which would put the cap rate closer to 11% for us.

I haven't talked to the seller but from the 3rd party that is introducing us he said he is willing to take a sellers note. Are you seeing banks loan 75 or 80% of the purchase price? I already got word from a banker I could get 65% financed through bank. So if you were seller would you take a 20-25% note? Or is that over the normal range?

Thanks guys any input at all would be appreicated.