Help Analyzing a 22-unit Deal

[Adriel Hsu]

Hello BP,

A 22 unit complex came one sale by the owners. It is in what I would say a C neighborhood.  School district is absolutely terrible (rated a 1 on Zillow). I would not touch single families here, but I feel with property management and enough scale for cash flow, I should consider it.

They are asking $705,000 and my realtor saw they purchased the property back in 2013 for $649,000

Right now, the current actual gross rent per month is $12,788.  Two units are Vacant right now.

They have laundry machines on site that bring in an average of $300 a month (or so the P&L sheet claims)

If i brought all units to market rent, and 100% occupied, it would top out at $14,000 monthly rents. 

They provided me a Profit & Loss statement of the last 22 months. 

The Average monthly: 

• Repairs: $1953
• Make Readies (turnovers): $321
• Property Management (current at 5%): 671
• Background Checks: $59
• Dumpster: $355
• Electric: $369
• Natural Gas: $52
• Water: $1033 (paying for tenants)
• Taxes: $1085
• Insurance: $624

So $13,088 subtracting all the actual monthly average costs brings me at $6266 monthly.

If I wanted to cash flow $150 per door given it is a less desireable area, that would leave my monthly mortgage payments at $3266

If i paid 20% down, at 4% interest amortized over 25 years, my monthly payments at a purchase of $700,000 would be $2956.

If I did a estimation based on typical percentages,

$13088 - $1085 (actual tax) - $624 (actual insurance) - $1278 (10% Vacancy) - $958.5 (7.5% Repairs) - $958.5 (7.5% CapEx) - 1023.04 (8% Property Mgmt) - $1868 (actual utilities costs from above)

That would equal to $5293 and if I wanted the same cash flow and assume the same loan terms, I would need a purchase price of $472,000 to bring my monthly mortgage payment to $1993.

Obviously this is a huge discrepancy, and I would lean towards the actual percentage as it is a less desireable area and Im not sure I would keep the current property management.  

Am I analyzing this wrong? How would you guys analyze it?

Thanks