Deal or Flop? 8 Unit Apartment

[Ayodeji Kuponiyi]

I came across what MIGHT be my first big step into apartments, however, I have 2 problems: I need a cash investor to get the deal done and I need a very experienced person to help me check my underwriting on the deal. I want to buy and hold. Asking price is $2M yet the property isn’t worth that. I am 99% sure it isn't worth that and the owner needs wants out ASAP. According to the agent, the owner is motivated and wants to move close to family across the country and doesn’t want to manage it from afar. I realize that I probably won't find an investor that will take 100% risk, but I am determined to make this happen IF it's the right deal.

Details

• 8 units
• Monthly rental rent: $9,085, Rent is month-to-month lease. According to agent the rents are under market/I’m currently waiting to receive feedback from a property management company regarding the current market rent and vacancy rates for property.
• The given Cap Rate: 3.74%
• NOI: $74,715
• Unit Mix: 4 one bedrooms/one bath & 4 two-bedrooms/one bath
• Exit Strategy: Refinance after reposition within 2-4 years
• Value add potential: needs updating (bathroom & kitchen), appliances are in as is condition, needs painting, unfinished basement w/ laundry, 8+ car parking lot.
• Exterior: stucco
• Seems the owner pays for gas and water, tenant’s responsible for electric.

Below is my underwriting when I applied the 3.74% Cap Rate to the adjusted NOI bring the valuation of the building to $1,180M, For the expenses, I used 55% since the seller's expense came to 35%

Since it's not cash flowing, below I adjusted the purchase price to $525K as a potential cash offer:

So deal or flop?