8 Unit Deal Analysis

[Anthony Palmiotto]

I have a deal that I would like some feedback on. This 8 unit is located in a very safe town. However, unemployment here is about 2.5 points higher than the state average. Also, the population here is growing at 14% per year.

So total income for the property is $78,000 assuming a 5% vacancy rate which is fair for this property based on its rental history and my state's average vacancy.

Total expenses are at $28,250 which includes $625/month for maintenance/reserves for each unit. I usually see this number at $500 per month but I'm being a bit more conservative than that.

That leaves me with this:

$78,000 Income
$28,250 Expenses
$49,750 NOI

I think that I can get this building from the motivated seller for $400,000. I think that $50,000 per unit is a little high in this area of the state but that would come out to a 12.5 cap roughly (basically unheard of in my state unless you're buying in a war zone).

If I borrow at 5.2 percent and have a 75% LTV I would have a mortgage of $19,800 per year.

That leaves me with:

$49,750 NOI
$19,800 Debt Service
$29,950 Cash Flow

That is roughly a 30% cash on cash return. Seems like if everything checks out during due dilligence, this would be a good deal. In addition, there might be an opportunity to add a 9th unit in the basement my finishing it off and there also may be a little but of upside in the rents to the tune of about $3,000 per year.

Thoughts? Thanks in advance.