5 Unit Analysis

[Melissa N.]

Hello everyone! 

We are newbies and have been running numbers on lots of deals but they never seem to make sense (off MLS). We finally have one that my husband saw and we realllly want it to work. With that said, we don't want to overpay either (I think this is a fairly common newbie issue).

It's definetly a 'value add' since the rents are below market (by about 150) and they can use some reno. How do you guys figure out the prevailing cap rate for the area? 

What do you think of these numbers:

5 units

240 sale price

27600 annual rent

12055 in expenses (including tax, insurance, outdoor lights, property manager 8%, repairs/main. $40/door, landscaping - am I missing anything?)

At then current situation I am not sure 240 makes sense. It is in a growing city (one of the best!) and in a C class neighborhood right next to a B class neighborhood. 

Once we do some light fixing up, we will should be able to get 37500/yr in rent. I know how to do the Cap rate but not sure how to compare that to the prevailing Cap. Basically so I know if I can turn this around in say 3-5 years. Any thoughts are GREATLY appreciated. Love BP and really hope this is a good deal! 

[Nicholas W.]

You may have added in it, but I didn't see a vacancy expense listed. That should account for around 5%. Also I didn't see capex so I assume you lumped that in with repairs and maintenance but I'd venture to say that $40/door would be a little low for both repairs/maintenance and capital expenditures. Maybe $60/door or so would be more appropriate. 

Also keep in mind that 5 unit's will be more difficult to finance than 1-4 families.

As for the local cap rate I think you'd only find that by talking to local investors and/or real estate agents who work with them.