New Investor Looking at Multi Family Deal

[Matthew Grabau]

I am a new investor based in Denver looking to do my first Multi-Family deal with a goal of purchasing 1-2 deals per year.  I have a deal I am looking at in Denver that is Pre-Market but I am not sure if the numbers make sense.  

It is in Westminster about 1 block from the new lightrail station opening up this summer that over the next 5 years include millions of dollars in redevelopment including high end apartments, parks, retail, etc.  The redevelopment property line will but up to my property line. This is all good but I feel it is overpriced with a cap rate just under 6% but in a sense its not overpriced as Denver is exploding right now.

I've been looking at this trying to get my head around it. Here's a couple thoughts;

-$1.4 mil purchase price with 30% down is $420k means approximate mortgage of $1 mil

- mortgage payment would be approximately $5500 per month.

-Yearly mortgage expense is approximately $66k

-If you use the proforma numbers they have on their brochure, yearly income minus expenses is about $85k

-Income minus mortgage expense ($85k-$66k) is $19k

-With a down payment of $420k that makes your return 4.5%

The real potential here is the 5 year outlook on the property being bought by a developer or rents going up 25% and then you can make a few hundred K on the deal.

http://www.denverpost.com/arvada/ci_27684383/227-million-projects-bring-780-living-units-downtown