9 unit: 2 triplex, 1 duplex, 1 single unit analysis

[Shawn H.]

There is a local 9 unit property available, I would like some input on maximum purchase price.

9 units: 2 triplex, 1 duplex, 1 single unit. 7- 2bd, 1 ba, 2 -1 bd, 1 ba, all in one location

From the owner:

He says bank loans 7x rent in this market, that's the price range. So 7x36,300= $254,100 asking

Gross income: $36,300

Property Tax: $2455

My estimate on insurance: $2400-3000/yr

Utilities paid by tenant.

No property managers in this area.

The maximum purchase price I came up with is $163,000, before repairs. I've been in a couple units before. I know the flooring, appliances, waterheaters will need updated soon. The outside looks to be in good condition. I used 45% for expenses, cap ex etc. The owner has owned these for a long time. How do you come to an agreement when so far apart on prices? Let me know your thoughts, thanks. 

[Basit Siddiqi]

how is the gross rent on a 9 unit only $36,300?
36,300 divided by 9(amount of units) divided by 12(amount of months in a year) = $336

$336 is an really low amount to be charging on rent. I am not sure if some of the units are vacant?

I do not think how much a bank would lend on a property should have a bearing on what you should pay for a property.
if you think its worth $163,000 - offer that amount and see what he says.

[John Leavelle]

Howdy @Shawn H.

First, get yourself a Realtor to help with the deal. 

 I agree with @Basit Siddiqi that the income looks off. Either to low per unit or a number of vacancies. You need to get this clarified. Do not go with seller opinion of what banks will lend. That is not how Value is determined. 9 units is considered a commercial property therefore, you should use the current NOI and Cap Rate to determine the value. Find out what the Cap Rate is for the area (use a Realtor).

Are all units located on one lot or multiple/independent lots? Can make a big difference on your value add play. If individual lots you can use comps to help determine an ARV for each.

 You definitely need to get a good idea on Rehab needs.  You are correct deducting this from his price.

I would want to know more about the area and tenants given the low gross income.

[Shawn H.]

The rents are probably correct. On average they are probably around $350/mo. Rents in this town range from below $300 to $700 at the very most. Very few at $600-700, most between $500-$550. The 2 bd units are 600-650sf, the 1 bd units are 400sf, so they are small. I think the current owner is just throwing a high price out there. He didn't really advertise very well, just seeing if there is any interest maybe. The 7x rent is a joke, don't know where he came up with that. I do realize the appraisal would take into account the income as it would be considered commercial. The units are all on one lot. The area is fine, close to schools. The tenants are generally lower wage or single mom's.