Thoughts on this 37 unit

[Taylor C]

I've run across some larger multi-units. This one seemed interesting.

37 units + underground parking
ASK: 1,999,000
CAP: 7.34
GROSS: 301,309 (25,871/mo rental - 4% vacancy + laundry income), with opportunity for rent increases
NOI: 146,695 (after owner pays heat 35,200)

Janitor (14,000), maintenance (2,200) and management (26,500) are included in expense.

Owner has 1,200,000 mortgage at 5.5% that is assumable

What do you think?

[Jon Holdman]

Taylor, the calculation is simply 25,871 x 12 = $310,452. That's the "gross scheduled rent". Your figure subtracts out the vacancy and then adds back on the laundry income. The "50% rule" is based on the gross scheduled income.

Laundry income, IMHO, is irrelevant. Sellers throw it in to try to chase a few flys off a stinky deal. If you want to be in the coin op laundry business, buy a laundramat. There's one right up the street from me that's fully equipped, but has been closed for years.

Applying the 50% rule to NOI of $310K gives an estimated NOI of $155K. The NOI figure you quote is about $147K. I assume that includes the laundry income. So, the NOI from the property at least $10K below the figure expected from the 50% rule. There's nothing magic about 50%, so its not unreasonable the NOI would be a bit lower. Since the seller is giving you a figure for NOI that's lower than that you would estimate from the 50% rule, I would assume its actually lower still.

If you have to go to a commercial lender (bank, insurance company, pension fund, etc.) to get this loan, there's no chance you'll get 90% financing. Maybe 80% for a premium rate. More likely less than that.