14 unit apartment. Help with offer price!

[Micah Copeland]

Hey ladies and gents. I am still not 100% comfortable with coming up with offer prices on mid to large size apartment buildings. Here are the details...

I am trying to get an apartment under contract in Madison Tn (10 minute drive from downtown Nashville) and the seller definitely has motivation to sale. 

14 units - 10 1/1 and 4 2/1

She currently only has 9 units (all 1/1) rented out and she lives in the last 1/1

She states she doesn't have any of the 2/1 rented because she requires two months down to move in.

Rent rolls (checked the leases and is accurate and market average)

1/1 - $650 a month

2/1 - $750 a month

Current rent roll a month - 5,850

Monthly expenses..

Sewer - 112

Storm - 40

Waste/ trash - 76

NES - 90

Water - 80

Gardening - 50

Hazard Insurance - 333

Taxes - 516

I used an 8% cap rate to get my offer price at 569,125

Does this seem about right to everyone? Would anyone do anything different?

If the property was fully rented the NOI would be 8,203 which would be a substantial increase.

At that NOI at an 8% cap and 7% vacancy, 10% repairs, and 10%property management the value would be 748,523.. Soon you all tell me.. am I doing this right or missing something?

[Aaron Montague]

@Micah Copeland

The tenants all pay a majority of the utilities?  Specifically heat and electricity? Hard to believe, but awesome if it's true.

I'd pay $630k and still make 20% Cash on Cash return.  Anything less and it just gets better and better. If you can get it for 390k, you'll have a 4k/month job lined up :)

I think I used all your numbers and came up with these:

Down Payment $157,500

Remainder of closing costs $7,500.00

Total Due at Signing $165,000

Mortgage Rate 5.00%

Length of Mortgage in years 20 (commercial)

Monthly Mortgage payment $3,118.29

Taxes $516.00

Sewer and Water $152.00

Trash $76.00

Heat/Utilities $125.00 (This is my big question mark)

Legal $41.67 ($500/year for LLC filing fees)

Cap Ex and Ops $450.00 (this is $400 + $50 for gardening)

Insurance $333.33

Mgmt Fee $950.00

Vacancy $950.00

Total Expenses $6,712.29

Total Revenue $9,500.00

Cashflow/month $2,787.71

Cashflow/year $33,452.51

Cash on Cash Return 20.27%