Stumbled Upon Some Apartments, Now what?

[Michael Tucker]

BP Fam,

I was feeling ambitious looking for leads in random places and came across a 15-unit multi-family. I decided to cold call it with a handy dandy downloaded wholesale leadsheet from BP. After attempting to go through my leadsheet, I spoke to an older gentleman claiming to sell the property for almost an hour. He stated that he purchased the property when he was 21 (apparently he's had it for about 40 years) and wouldn't have ever sold the place if he had any heirs to leave it to as he and his wife begin retirement. 

The owner purchased the apartments located less than 2 miles to a booming military base in the DC/MD/VA area. I've done some work there and can see the appeal of the growing area to accommodate the growing number of commuters.

Full Disclosure: I only own one rental property and while I would love to get in on a Multi-Family/Apartment I have no idea to properly vet the place. The owner won't provide any documentation for me to check, the information I've pulled from the county site didn't match what he initially told me over the phone. 

He did offer seller financing $1.2M, at today's interest rates (~3.5%), with a $250k down payment or an all-cash/full payment offer of  $1M. (He stated the county assessed it for ~$1M, but I found the closest matching parcel to what he described at less than $870k.) I tried to call back to get a little more information to run a better assessment but the only thing I got is that all the units are 2BR/2BA with a "den or study" that the tenant(s) could use as they see fit, and if there was an additional person, there was an additional charge. 

Tenants pay all the utilities (except water since the property is on a well), there's a vacant commercial space on the grounds, all on month to month leases. He says the place is full, that he has a cap rate of ~12% and has an income of $15-17k monthly. 

He has also offered to help mentor me in running the property if I go with seller financing since he doesn't want the place back in foreclosure.

Based on my assumptions (and I had to make a lot): 

Actual CapRate - 5.36%

CoCROI - 3.66% (not including coin operated laundry)

Gross Income - $11,475, (15 Units, Rented at $850 each, 10% vacancy)

Monthly Operating Expenses - ~$6k (Repairs, Prop Mgmt, Taxes, Insurance [No clue what to put here estimated $416/month?], Replacement Reserve, Pest Control, Accounting and Legal [No idea how much legal would cost per month]

The Dilemmas:

Aside from having very little experience in multi-families, i recognize this as a unique opportunity that I'd like to pursue if it makes sense. I have 0 available cash, but I do have a rental (with a tenant that plans to leave in the summer) that probably has about $50K in equity. Without partnering, what could I do with my rental to come up with cash for a down payment if this is worth pursuing. If I could get north of $100k I think I could make something work.

From what I've gathered from the site, it looks like I should get some "pro forma" information from the seller right? I'm assuming since he's older he might want to do things old school. The owner told me once I put down a deposit with a lawyer in escrow, I could get all the information I wanted. What other information should I have to make an appropriate analysis BEFORE a deposit?

So what should I do?:

BP...I have no idea where to go (aside from praying). I obviously don't want to take this gentleman's word alone, any advice on what to do next? 

Do I need an agent to help me with this? Should I pay more than what the place is assessed for? What should I offer to the seller? Is seller financing the way to go?  I also haven't visited the property yet since I didn't think this was a good deal.

I'm ready to take the jump if everything makes sense, but I can't begin the process of pulling out a down payment just to investigate the place further. I've went back and forth on this for a couple of weeks and after talking with the owner twice, I realize i need a little help so I turned to you BP.

Apologize for the length of the post, hopefully it has enough information and its posted in the appropriate section. 

Thanks,

MT

[Nick B.]

@Michael Tucker, 

Assuming that the seller does not have (or want) to provide financial records you may still do the following:

• Get market rents by surveying comparable properties
• Calculate your annual gross potential rent (GPR): Market Rents * Units * 12
• Talk to a few management companies that specialize in this type of properties and obtain expense break-down from them. You may also get this from National Apartment Association or various data providers.
• Get market cap rate from apartment brokers in the area
• Calculate your projected NOI: NOI = GPR * (100-Vacancy)% - Expenses
• Calculate value: V = NOI/Cap Rate
• Subtract deferred maintenance and potential profit (forced appreciation)
• The result is your maximum offer price