Rookie in need of deal analysis help needed!

[Natalie Medved]

I am a Rookie and first-timer multi-family buyer looking for help on a deal analysis and some perspective.  After living below our means and saving for years, my husband and I submitted an offer on a 4-unit, 15-bedroom property (3 X 4BR and 1 X 3BR) with a long history of renting to college students and young professionals.  Now I am second-guessing myself and looking for perspective on how (assuming it gets accepted) we can increase cash flow on the property or if we should walk away (which we can do).

First, some background on the property.  The 3BR unit rents for $3,500 per student per semester (roughly $777 a month per student), and the 4BR units rent for $3,300 per student per semester (roughly $734 a month per student).  The property is being sold subject to the 15 leases that expire in June (college students and young professionals), so we can raise rents for the following school year or lease to year-round tenants.  Utilities (heating, water/ sewer, electric, internet) are included (which makes me nervous given the rising costs of electricity and oil and our inability to increase the rent until the leases expire in June).  Last year, the property grossed around $101K and netted $61,980K after operating expenses.  The property appears to be in good condition (the owner has invested in major projects regularly to update the property and maintain its condition). It is located in a desirable area (a stone's throw from campus, stores, bars, and restaurants) in a small college town, has 13 parking spaces, and has been owned by the same owner for the last 40 years (he moved to CA and is retiring).   

I started running numbers and comps the second I saw the listing.  It is in much better condition than other buildings that rent to college students, and the rent is lower than those buildings.  The showing was a mob scene.  Agents and potential buyers were all over the place when I went to see it on Monday (which was also the first and only chance to see it).  Initially, I wasn't going to put an offer in because I didn't have an interest in getting into a bidding war and was worried about the cash flow.  The seller set an offer deadline of 5:00 p.m. last night.  I started kicking myself after I missed the initial deadline because good multi-family properties with 4+ units rarely pop up, and our chances at securing multifamily like this nearby (so we can be actively involved with its management) is dwindling given ever-increasing interest rates (the tea leaves suggest we are headed for rate increases like those seen in the 1980s and 1990s).  

Here is the offer.  We came in at $595K with a $2,500 escalation clause up to $615K.  We are preapproved at $700K, 25% down at 6.99% (ugh...the pucker factor).  I ran multiple reports using expenses with some upward adjustments.  Also, the property is located right down the street from where we live and work remotely. We want to be actively involved with its management (so we can save on the management fee). 

Any advice? Should I call and retract our offer? Is it worth holding the property to work on cash flow? Am I just panicking?

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*This link comes directly from our calculators, based on information input by the member who posted.