Deal with a few red flags

[Thomas Lowe]

I'm looking at a 12 unit building in the Midwest. Cash flow is very impressive on my analysis of rent roll. However, when looking at rent roll, I noticed that 2 weeks before the property went up for sale. Rents in three of the 2 bedroom/1 bath units were increased from 650 to 850. Market rent for this area seems to be about 700-750. I'm assuming they did this just prior to sale to inflate their numbers? Is this too much of a red flag to buy the unit? If I was a tenet, I think I'd probably consider moving out if my rent was suddenly increased 25%. 

Thanks in advance for your advice!

[Joseph Cornwell]

@Thomas Lowe I am familiar with the listing you are referring too. I would say generally speaking in the Cincinnati market you need to be very careful with locations, they can be hit or miss and its very neighborhood and even block by block dependent. If you have a strong manager in place even some of the roughest areas can be successful. Just understand what you are investing in before you do it. As for the numbers, 56k a door is pretty high for that area but unfortunately a lot of investors particularly out of state are willing to pay the premium to have somewhere to park money. As I advise my clients in this market, you are not really competing with the seller for a fair price, you are competing with the market and the other buyers. While 603k may be a more reasonable market price based on past performance, many investors are willing to pay more for the potential upside in proforma going forward. Best of luck on your deal!