Financial Analysis on a 12 unit building-- need help

[Adam Dow]

Hi everyone, 

I am running some numbers on a nice 12 unit building in my area. The current owner hires a property manager and pays 5% of gross rents plus rent finder's fee and a few other variable fees. The seller keeps really good records of expenses and has provided me with detailed income statements outlining property management expenses, finder's fee, etc. If I buy this property, I plan on taking care of all property management needs myself (except for repairs and maintenance), so I will be saving the 5%+ fee the owner is currently paying. My question is: when I am analyzing the financials on this building, should I adjust the expenses to reflect the fact that I will not be paying the property management fees? The numbers do not work with the property management fee (yielding less than 6% cap rate, cost of financing is 3.5%) if I run the numbers exactly as provided from the seller. If I take the property management fee out, the property is above a 6% cap rate, which is my minimum and seems like an OK investment. However, I am concerned that if I leave out the property management fees of my pro forma, I may be making the property look like a better investment than what it really is. 

The property is already priced at a premium due to the high demand, almost no supply, and near-zero vacancy rates in my area. Very little room for price negotiation here. This would also be my fifth property in 5 years, but this would be my first building bigger than a duplex. So this is a bit more of a complicated property to analyze compared to my previous ones which were pretty straightforward. 

Any suggestions would be greatly appreciated!

Adam