Looks like a great deal to me, but...

[Mark Myers]

I am completely new to this, so forgive my abundant ignorance.   I've found and MF 8 unit building in a pretty good location.  All units are 3/2 1080sqft. Actual 2014 numbers are as follows: potential yearly gross income $50,000      actual yearly gross income $43,175.    Building operating expenses $10,872.  Asking $330,000.  Mortgage would be (ballpark) $2200/monthly. Seems like a great deal.  Why has it been for sale for almost a year? Am I being overly cautious? Thanks for input.

[Wade Sikkink]

I agree with @Steve Babiak, the expenses are too low.  We have a 14 unit building and it's surprising how close the expenses run to 50% over the last 3 years.  There is a high probability that the seller has been neglecting maintenance and that's why the expenses are low.  This is a common tactic for sellers to neglect maintenance the year or two before they try to sell so they can make the expenses look better than they really are.

When you run your numbers assume expenses will be 50% of gross rent. The other 50% has to cover debt service and provide any profit. So, $45k revenue (assume 10% vacancy) less $22.5k expenses leaves NOI of $22.5k. Your debt service is $26.4k annually, so this looks like a loser to me.

Have you looked at the property to see if it has a lot of deferred maintenance?  If it does, that's a negotiating point to reduce the price.  Also, if there is an opportunity to increase rents then that could improve your numbers and make this a better deal.  We did both those things when we bought our building (negotiated a lower selling price and raised rents after taking possession), so they are realistic to put in your plan.

Good luck!