12-Unit Rental Property Analysis Help

[Scott Johnson]

Hey, everyone!

I'd appreciate a second set of eyes on my analysis:

https://cdn.carrot.com/uploads...

The seller is asking $1,175,000 for this 12-unit apartment building. Their actuals (see 'Prior Year Financials') are showing an NOI of $36,310.40 which puts it at a 3% cap.

The terms I'm working with are 7.5% Interest, 80% LTV, 20 years and a 5 year balloon. I then subtract my cash flow from my NOI and use that as my mortgage payment, use that to calculate the loan balance & purchase price. This tells me that the only way I could purchase this property is if it was $431,614 which is $10/unit cash flow per month 🤣

Am I going about this analysis correctly? I'm pretty sure I am, but I may need to be put in my place, so feel free to be brutally honest. If you have any additional resources where I can learn how to analyze multifamily properties, it would be greatly appreciated. I'm using what I learned from The Advanced Guide To Real Estate Investing by Ken McElroy and what I learned from my Single Family mentor. 

Thanks in advance!

[Ricardo R.]

@Scott Johnson Looking over your financials for the property I think I need a bit more information or at least clarification. Scott, you're saying you say the purchase price is $1,175,000 and you are financing with a 5yr. balloon on 20 years at an interest of 7.5% at 80%LTV ==== 80% LTV means you are putting 20% as a down payment and the bank (lender) is lending 80% BUT your notes on the financials say that you are only putting down $86,323 which is only roughly a 7.35% down payment - Did you overlook this? OR is the value of the property substantially more than the listed price of $1,175,000 ???

A quick look over the financials: 

- I didn't see any insurance factored into the Actuals by the Seller, I do see that you have annotated it but it is not factored in, also for a 12 unit $2,200/yr. insurance seems relatively low, although it may be your area - you should certainly follow up and ask the seller who they use. 

As a side note looking at the monthly rent roll, the vacancy for the bldg. is @ 29.65% (economic/physical) or at least it is for the rent roll you provided for that month but is currently @ 12-13% vacancy so far YTD but in 2022 it was around 35.2% vacancy (maybe slightly lower but not much if rents have gone up since then) 

If I run the financials you provided the cashflow is negative by @ $4,324/mo. and that's by running it in favor of the property i.e. 20% down payment at 7.5% on 20 years | 12 units rent average of $572/mo. | w/ actual vacancy 

Using the numbers you provided the property makes $1/mo. cashflow at a purchase price of $504K

If I run the financial you provided BUT instead using 8% vacancy on the MARKET RENTS - it would start cash flowing @ $831K and lower.

Also, you are missing laundry room income and/or there is potential for a value add in this area