5 Unit Property Analysis - Delaware

[Eric Waterman]

I recently engaged an owner that posted his 5 unit property for sale as a FSBO. He wants $395k for 5 units. the gross monthly income ranges from $500-585/mo/unit...it averages to about $567mo per unit. Total gross rent of $2,835. The package provided by the owner only listed monthly expenses of $415 (not including taxes, insurance or utilities). I don't know what that figure includes.

Taxes = $1,743/yr

Insurance = $1,817/yr

Utilities = $1,459/yr (water, sewer, trash)

I put all this info in my cost model. I added in vacancy (10%), property management (10%), maintenance (10%), $1k/yr for Contract services, $750/yr for legal costs, I escalated the taxes, insurance and utilities by 3% (numbers provided are from 2017). When all is said and done I project an NOI of about $17,500/yr.

The asking price would amount to a cap rate of ~4.4%. To me that is way way too low, even for new castle county (Wilmington). I think the property is worth $180-190k. 

I emailed the owner back and said that I appreciated the information and opportunity but I was not going to be able to help him out. It was a bridge too far. I told him what I thought the property was worth to me...well I got an earful. I was told I’m a swindler, pretty much scum and I have no idea what I’m doing. Yikes, haha. 

I have confidence in my modeling ability, But just wanted to post this deal BP to get a sanity check.