Can someone analyze this please?

[Herm M.]

This property is valued at $46MM, according to the tax assessor.

Can someone tell me, based on these numbers, what is the MAX that should be paid for this property?

The buyer must assume a Freddie Mac loan ($19.4MM, 6.4% rate) that has a payment of about $120,000.

I don't see how anyone can assume that loan, and pay anything more than $5M on top of that to the seller.

Am I right or wrong? Here are the numbers:

[Jon Holdman]

First, those values are tax assessments. They have little, if anything, to do with values. Who knows what happened to change the value. If its CA, there could have been a sale, which would have triggered a reassessment.

With a 246 unit complex, management costs are a given. $200K in management fees out of $4.1M in gross rents (though you also say this is net) seems quite reasonable.

With a big complex like this, your "expenses", which include operating expenses, vacancy, and capital items, will certainly be 50% at a minimum. If its higher than that, you may make improvements that bring it closer to that figure. But I would not assume you'll get it below that number.

So, here's a really simple "is this a good deal" analysis:

Gross rent: $4,100,000
Expenses: $2,050,000 (50% of gross rents)
NOI: $2,050,000
Debt service: $2,107,687 ($26.4M, 7%, 30 years)
Cash flow: $-57,678

No, that's not a good price. Break even would be about $25.7M. If you want $100/door/month in cash flow ($295,200 a year), you could pay, at most, about $22M.

Do you have a rich aunt? If you mean a real investor who actually understands this business, not a chance. I get 14% on firsts at 70% LTV. You're wanting a loan for the piece from 73% to 100% LTV at 6.5% for 30 years fixed? Absolutely no way. I don't think you can get that for any price but if you do its certainly going to be north of 20%, its going to be interest only, and its going to have a three year, at most, balloon.

What you might find is a money partner. Someone who would put up the additional money you need in exchange for a share of the profits. Keep in mind you'll need money for closing costs, probably on the order of $500K, as well as working capital. So, even if you get this to an acceptable price of about $22M, you would need this partner to put up about $3.6M. In exchange I'd expect them to want something like half the profits.

With that deal, you should net about $600K a year. Half goes to the investor. That's only about an 8% return on his or her money. That's not enough. So, you're going to have to fork over more for some time period, and figure out a way to get their money back to them relatively quickly.

You could look into syndicating a deal like this. Get a bunch of investors to pony up smaller chunks, then pay them back. Even so, an 8% return with no plan to return their capital just isn't very interesting.