Seeking advice on potential first deal - off market 6 unit apartment

[Travis Boyd]

Hi BP community! I'm looking for advice on whether I should purchase my father-in-law's 6 unit apartment in Burien, WA (10 minutes south of Seattle) as my first deal, or perhaps help find him a seller that would pay more than I could and is a couple years ahead of me in REI. My father-in-law told me he plans to sell his 6 unit condo building ASAP so he can "retire" from being a landlord. He has owned it for over 30 years and has no debt, so seller financing is possible and he doesn't need a large amount of cash soon. 4 of the 6 units have been recently updated. The units are being rented below market at around $1,700/unit, whereas market rent seems to be around $2,150/unit for these 2 br/1.5 ba units with laundry in each unit and undercover parking. I know a year ago an investor reached out and offered him $1.6m which he felt was a low-ball offer. I tried calculating value based on NOI and cap rate (see below) but I'm new to this and the value seems to come out lower than I would expect. I am considering offering him $1.8m with a low (or no) down payment and seller financing at a low interest rate so I can at least break even on cash flow after getting rent closer to market value and with upside potential as a MTR and strong appreciation opportunity. For context, before I learned about his 6 unit I was planning to purchase a 2-3 unit long term rental in Q1 2025 as my first of many deals with a 5 year goal of financial freedom so I can coach my daughter's high school cross country and track teams. I'm also considering finding a seller that would pay more than me to help my father-in-law out and perhaps get a wholesale commission that I could use on my next (ok, first) brrrr, but I'm not sure the best way to validate a fair price or know what a fair wholesale commission would be. I will be attending a real estate meet up tomorrow night in Seattle but would appreciate any advice before the meet up.

Some numbers:

Expected 2026 income after raising rents to market value and assuming 7% vacancy: $144k.

Expenses: $14k property management, $18k property tax, $10k insurance, $10k utilities, $8k in repairs/maintenance/advertising/admin/etc: Total operating expenses: $60k

NOI: $84k

Based on 6% cap rate that brings the valuation to only $1.4m, or $1.5m based on 5.5% cap rate. That seems like a way too low evaluation. My father-in-law is also considering creating an HOA and selling each unit as a condo for $350k which would be $2.1M. That sounds like a lot of work and I'm sure he would prefer to avoid that work and just sell it for $1.9m or $2.0m.

if I were to buy it from him, to get to cash flow neutral I would need to increase rent on all 6 units to market rates and my monthly payment would need to be close to $6.2k/month, which would be $100k down payment, $1.7m loan with seller financing at 2% interest rate and flexible ballon payment.

What would you do if you were me? 

Thanks!

[Bonnie Low]

You haven't said exactly what you would be buying it for but I would jump on it and here's why. Low or no down, seller financing and low or no interest with a balloon payment later is the holy grail (location, building condition, market also matter but it sounds like you have all that). You could trim your expenses by eliminating property management - you can absolutely do this yourself on a 6-unit, even as a newbie. I'd be surprised if the complex doesn't have individually metered units so you may be able to eliminate the utility expenses unless those are for common areas like walk ways, parking lot or laundry. Each tenant should be paying their own utilities. Even if you don't decide to keep it in the long run, it's an appreciating asset you can make money off of. If he doesn't need the cash now, you could also negotiate a split you're comfortable with to get him the return you and he feel he should have at the point you refi when the balloon payment comes due.