61 unit multifamily deal

[Jerrmarco Rhodes]

Hello,

I found this property and I was curious to see if it comes close to a good deal or not. I used the 50% rule but I may have made a mistake so i would like if you could help me out with this. Thank you.

Milledgeville, Ga
# Price: $2,150,000
# No. Units: 61
# Building Size: 37,440 SF
# Price/Unit: $35,245.90
# Property Type: Multifamily
# Property Sub-type:
Garden/Low-Rise
# Property Use Type:
Investment
# Cap Rate:
8%
# Occupancy:
94%

# Year 2008
# Scheduled Gross Income $340,404
# Effective Gross Income $340,404
# Operating Expenses $143,631
# Net Operating Income $196,773
# Pre-Tax Cash Flow $196,773

[Jon Holdman]

You say you've used the 50% rule, but you also list these numbers:

# Price: $2,150,000
# Scheduled Gross Income $340,404
# Operating Expenses $143,631
# Net Operating Income $196,773

Those expenses are only 42% of rents, not 50%. With that value for the claimed expenses, you get a 9.2% cap rate, which is likely what the seller or listing agent would claim. Assuming 50%, I get NOI of $170,202, which gives a cap rate of 7.9%. You say 8%, so I think you must have done the same calculation.

Getting to a 10% cap rate on this property would require a price of $1.7 million, which isn't really all that far off the asking price. But, does that work?

Scheduled Gross Income $340,404
Expenses $170,202
NOI $170,202
NOI/month $14,183.50
Price $1,702,020
Payment $10,204.47
Cash flow $3,979.03
Cash flow per unit $65.23

Don't know if that meets your goal or not.

I also think a 25% down payment, and a 20 year loan at about 8% is more realistic. I'd be curious if you've spoken with any brokers or lenders and have an idea of the terms you might get. Plugging those in, I get:

Cash invested $425,505
Payment: $10,677
Cash flow: $3,506
Cash on cash return: 9.9%

That's too low for rental real estate, IMHO. Personally, I think a 10 cap it too low.

If you want $100/unit/month (based on 100% financing), you can afford to pay, at most, about $1.35 million. Now the deal looks like this with realistic financing:

Cash invested: $337,500
Payment: $8,469
Cash flow: $5,715
Cash on cash return: 20.3%

That's better.

That equates to a cap rate of 12.6%. Probably going to be tough to get from a $2.15 M asking price down to $1.35M.