18 Plex deal feedback

[Rob Fegan]

I would appreciate some feedback on this deal (located in the central valley of California). It is an 18-plex in a town 15K people with a very high rent to owner occupied ratio (renter being on the high side).

Property is on MLS listed at $749,000

Deal Summary:

18 units x $500 per unit = 9,000 gross monthly/108,000 yearly

Vacancy factor I am using is = 5%

Total Operating Income = 8,550 GM/ 102,600 yearly

Total Operating Expenses = 4,412 monthly/52,950 yearly

As a percentage of Income 51%

NOI = 4,137 monthly / 49,650 yearly

In my analysis to calculate what I should be paying I am taking the NOI / my expected CAP RATE, which in this case would be 49,650/.10 = $496,500

In this back of the envelop math I view my max offer price (on the assumption that I have good data on both the rents and expenses side) as $496,500 to achieve a 10% CapRate.

I would really appreciate feedback as to if I am on the right track or I have totally missed something here.

Thanks

Rob

[Dennis Tierney]

Are central valley properties really selling at a 10 cap rate? From what I've read about the Ca. multifamily market that sounds unrealistic for a cap rate , but, maybe it's different for the central valley. Your analysis seems right it's just the cap rate I wonder about.