Off-market duplex in Tacoma, WA - help me analyze

[Pete M.]

Hi all,

Connected with a MFR broker (investor himself, too) who brought to my attention an off-market deal for a duplex in Tacoma, WA. This is in the South Tacoma area, 98418 zip. I'm leaving in about 30 mins to go see the property. This home was last purchased in 2012 on a VA loan, and the owner(s) were transferred the following year (property tax site says they currently reside in VA). This broker says the property will appraise for $330,000 minimum. Bit more directly from the broker:

"This home was purchased with a VA Loan in 2012 and the owner got relocated a year later. Due to the strict lending requirements of VA loans, the home is complete updated and has new Romex electrical and electrical panel, new copper plumbing for hot and cold water line, new black abs drain lines, new main drain line, new sewer line, new composition roof, an I-beam reinforced deck, and more. Cosmetically, there is very little to do. I recommend an interior and exterior paint within the next year."

Ask price: $290,000

Unit: 3/1 (1850 sq ft) & 1/1 (1050 sq ft)

Built: 1925 (shows Adj. build date of 1961)

Current gross rent: $2750/mo

Below chart provided by broker:

2 Units
Appreciation	3%	3%	3%	3%	3%	3%	3%
Price/Sqft		$ 99.32
Value Estimate		290,000	298,700	307,661	316,891	326,398	336,189	346,275	356,663
Asking Price		290,000
Purchase Price		290,000
Price Per Unit		145,000.00
Misc Expenses		-
Total Sqft		2,920
Rentable		2,920
	-
Total Cost		290,000
Downpayment	25%	72,500
Loan		$217,500
Rate		4.750%
Payment Term		30
Monthly Principal and Interest			1,135	1,135	1,135	1,135	1,135	1,135	1,135
Utilities (Wtr, Swr, Grb) 100% Paid by Tenants		-	-	-	-	-	-	-
Maintanenc e Expenses			138	83	85	88	90	93	96
Taxes			279	288	296	305	314	324	334
Insurance			55	57	58	60	62	64	66
Vacancy Rate @5%			138	142	146	150	155	159	164
Property Management Fee		10%	275	283.25	291.75	300.50	309.51	318.80	328.36
Monthly Cash Out	2,019	1,986	2,012	2,038	2,065	2,093	2,122
Monthly Rent	$ 2,750.00	2,750	2,833	2,917	3,005	3,095	3,188	3,284
Monthly Cashflow	731	846	906	967	1,030	1,095	1,162
Annual Cashflow*			8,773	10,154	10,867	11,602	12,358	13,137	13,940
Mortgage Principal Paid			3,284	3,284	3,284	3,284	3,284	3,284	3,284
Annual Appreciation (Estimated)	8,700	8,961	9,230	9,507	9,792	10,086	10,388
Total Annual Return			20,757	22,399	23,381	24,392	25,434	26,507	27,612
Cap Rate			8.05%
ROI Cash On Cash			12.10%
ROI Cash/Debt Reduction/Appreciation		28.63%

Seems like he's assuming 5% for maintenance, about $3348 for taxes (which is in-line with county tax site), can't speak definitely to insurance rate, but seems reasonable, 5% vacancy, and 10% for PM. To me, seems like he's missing an expense for CapEx.

My outstanding questions for broker:

-Condition/age of HVAC & water heater

-Does that $290k include closing costs (not separately itemized on his sheet)

-Who is currently paying for electric bill? (Believe water/sewage/garbage are paid by tenants, but unclear on electric)

-I don't see any item listed for CapEx... seems like a big miss to me in his cash flow / CoC calculations

-Does it require flood insurance?

-He mentioned he got this lead from a wholesaler, and he tacks on 3%; is that already factored in to the $290k price?

-Why remove vacancy cost from Cap Rate calculation?

What other questions should I be asking? What do you all think of these numbers? My napkin math of CoC came out lower than his 12%; if I set aside about $200/mo for CapEx, that lowers the annualized cash flow from $8773 down to $6373, which puts the CoC at 8.7%. Could be even lower if we have to put some more money in for repairs, paint, etc.

Is Cap Rate even a relevant metric on this kind of property?  I've heard typically not since these small MFRs are valued based on comps.

Thanks.