Evaluating Value of 32 unit MF

[Samantha Vice]

I am currently analyzing a deal I've come across and I think the asking price is outrageous but all of my real estate experience is in flips and I know that single family homes and multi-family is very different.

Here are the details as I know them currently:

4 buildings, with 8 units each (total of 32 units); each unit approx. 

All units are on the ground floor, all units are 1 bedroom & 1 bathroom.

432 sq feet. No laundry on site.

Currently 9 units are vacant and need "cosmetic repair" which ranges from no refrigerator, to new flooring and paint.

Current rent rates are as follows:

13 units @ $325/m

6 units @ $375/m (but one is occupied by the Property Manager and is charged no rent)

1 unit @ $300/m

2 units @ $280/m

Market research says that with repairs each unit should be renting for $425. I have not yet been inside each unit that is occupied but my assumption is that each will need work before I can charge the $425.

Current Expenses: Total is $1,971/ month (this includes on site manager rent, water/sewer, property taxes, property insurance, two trash containers, common area lighting, and an averaged maintenance expense; this does NOT include loan payments if property were to be mortgaged as I will have to do it)

Asking price is $750,000

Please note that not having yet viewed the occupied units is not due to laziness or lack of due diligence; but rather it has not yet been arranged and I do know that cost will have to be calculated into my expenses.

What is the best way to go about calculating a value of the property?

Any and all advice is greatly appreciated!

[Austin Peck]

Hi Samantha, 

You could look for similarly sized properties online to see what they sold for. As Dustin has mentioned, 23k/unit is pretty good. If I were you, I would do a complete financial analysis and see how much cash flow you could expect to generate even with a debt service (mortgage payment). It appears to be >5k/month net with 12-13k in gross rents, minus expenses, vacancies, and future debt service. 

I'd want to get more in depth than that and factor in EVERYTHING, and a higher property management reserve because 300-400/mo may suffice now, but eventually you'll have a full building and will be charged 8-12% of gross rents for management. In the end, purchase price is subjective in real estate. If you're cash flowing at a "great" rate, you could theoretically "overpay" on any given property. It also matters what types of terms you negotiate. Do you know if the current owner is willing to owner finance any portion of the sale? What are his/her motivations for selling? Knowing these answers can provide you leverage and give more opportunities for creative deal making. Good luck!

Austin