Help! Am I Being Stupid?

[Scott Walsh]

Hi all,

Offer was just accepted on my first deal and I am getting cold feet.  Can you wise folks double-check me, please?  Here are the details:

8 unit complex.  All 1 Bed/1BR units each renting for $400.  Comparable rents in the area are $450-650.  There is much deferred maintenance and I believe rents could be increased to $500 with minor repairs/updates.  Still, current projected rent is $3,200/month.

Current owner (in keeping with the deferred maintenance theme) has very few financial records but does prove up the following actual numbers:

-Property taxes, $1,900/year

-Insurance, $2,320/year

-Owner-paid utilities, $3,429/year

Estimated:

-10% vacancy

-10% management

-15% for maintenance/repairs, and 

-Reserving $700/month for CAPEX

BOTTOM LINE is $34,560 net rental income less $24,700 expenses = $9,900 NOI.

Offered $95,000 with $10,000 reimbursed at closing for immediate CAPEX (roof and A/C units). 20% down, loan on balance ($76k) at 6% for 30 years.

Cap rate with $400/month rents is 10.1%, cash ROI is 20.3%, and annual cash flow is $4,400. I know that's only $45/month/door but, again, I believe rents could be raised. Once I get them up to $500, cap rate becomes 16.7%, cash ROI is 49.9%, and annual cash flow is $10,916 ($113/month/door).

Are my estimates way off?  Will raising rents to $500 be easier said than done?  Am I missing anything?