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!