What am I missing in my analysis?

[Ryan Tremblay]

Hi BiggerPockets community - I'm in my education phase of real estate investing, and have been working hard to learn the details of financial analysis. I’ve done a fair bit of web research, and am also part to most of the way through a couple books (both recommended by BiggerPockets). I’m trying to validate my understanding of how to analyze the financials of a potential real estate deal, and am hoping someone can answer a few questions. To test my understanding, I went to the Redfin website, found a 4-plex, and worked out all the key numbers I’ve been reading about. I did all the math by hand to make sure I understood it, then I tried plugging all the same data into the rental calculator on BiggerPockets (fortunately I got the same results in both cases). Here are what I believe to be some of the key numbers:

• The property was listed for $625k
• NOI is $28,188
• Assuming a 30 year mortgage at 6.5% with 20% down and typical closing costs, cash flow would be negative $867 per month. Additionally, the debt coverage ratio would be 0.73.
• Assuming an 8% cap rate (I don’t actually have any idea what it is for the area), the property would be valued at $352k

Since I got the same numbers from doing the math myself and running the data through the BiggerPockets rental calculator, I’m assuming the math is correct. If this is the case, then I’m left confused about several things:

• This looks like an utterly terrible deal. There is negative cash flow and even with the principal being paid down, it would never break even (if the cap rate for the market is more like 4.5%, then it would be more highly valued but would barely break even after 5+ years). Am I missing something?
• Would any lender even be willing to loan money at a debt coverage ratio of 0.73?
• Why did this deal go pending after being listed for only a couple weeks? If you could increase the rent by 50%, you might end up with a valuation of around $615k (again making assumptions about cap rate), positive cash flow of around $866 per month, and a debt coverage ratio of around 1.28, which sounds much better. Is it likely that a buyer thought they could increase rent by 50% without putting much more money into the property?

I’d love to hear some thoughts on whether I’m analyzing this correctly, and also why this property looks like it is going to sell very quickly at price that does not seem to be indicative of a remotely good deal!

For reference, here is the listing for the property: https://www.redfin.com/WA/Everett/7801-Timber-Hill...

Thanks!

Ryan

P.S. Can anyone tell me if it is possible to edit the title of a post so I can fix my ridiculous misspelling of the word "analysis?" :/