Multi Family Deal Practice #3

[Chukwudi Motanya]

12 unit property

Purchase Price: $350,000 Price Per Unit: $29,166.67 Occupancy: 92% Seller Cap Rate: 10.6% 16th attempt at crunching multi family numbers. 84 more to go. So far from posting my other post on Bigger Pockets, one of the advice I got was to not do my analysis on Seller Cap. I should conduct it on the Market Cap Rate. This makes sense but now makes me wonder how do I find out what the Cap Rate is for an area that I am looking into? And how do I know if it is accurate enough to make it a comparable? My question for this goes into the fact that the selling of Multi Family units do not sell as frequently as Single Family Units due to volume. So if I find a 12 unit multi family at one point, and a 30 unit property in the same area at another point, how do I know that I could use the same cap rate to conduct my initial analysis for both? Going back to the analysis, using the seller cap rate of 10.6%, the seller is assuming NOI to be $37,100. Working backwards and assuming that 60% of Gross rent goes into expenses, I will assume that Gross rent for each is about $92,750. Per unit annually this would be $7,729 and on a monthly basis this would be $644 a month. From a Cash flow basis, assuming I am financing with 20% down and 5.5% interest rate on a 25 year amort, my PITI would come out to around $20,633. My cash flow per year would be about $17,000. On a per unit basis this would be about $1416 per year, and assuming I put $119,000 in the deal (assuming $3,000 of repairs per unit) then I would be looking at a Cash on Cash Return of about 14%. This looks good on paper. Now I'm curious on how the area is (Class A,B,C?) Why the seller is selling? Is the property sub metered. Are there ways I can juice up the Cap rate in the first 6 months. What is the cap rate in the area? What Capex would be required. Hoping my mind is starting to get geared in the right area. Either way I have 84 more properties to analyze so with time!

[Chukwudi Motanya]

Thanks @Nick B. and @Zach Quick. I think you guys are right. I've adjusted my approach to this to take what you guys said into account. From what you guys are saying, even if this is still just for practice, I should be trying to get the most accurate numbers I can find. I found another property and this time I was able to find the CIM for the property that has the past figures. I will use that to analyze.