[Calc Review] Help me analyze this deal.

[Elliot Saks]

I believe this building is a solid base hit, but may turn into a homerun if appreciation and rents increase in the area. I'd love some feedback.

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This is my first deal (other than the duplex I owner occupy in Southern California). I've got a counter offer out that should be accepted at 220k and I believe they will take it. I feel like I'm getting a good price on this building as the ARV should be somewhere around $290-300k, but it really only needs cosmetic work. A valuation using market rents should put it around $300k+ as well, but this is in a city where the RVR is fairly high. This neighborhood is a solid B, maybe a B+.

A bit of back story about the building.  The seller is a nonprofit that was using it as a transitional living facility for mentally underdeveloped adults.  They bought at the height of the market (2006 for $290k) and poured a ton of money into updating it.  New vinyl windows, new roof, new gas boiler for heat, etc.  I'm not sure how they can take such a haircut after having probably $350k into the place, but maybe they just want it off their books as they just changed CEO.  Who knows.

Market rents in this area are $550-600 for a 1br, $700-800 for a 2br.  I believe I can currently get median market rents and with cosmetic updates over the next couple years, higher end rents.  The city this building is in expects major economic growth in the next decade due to a major factory opening, which should drive up appreciation and rents as well.  I'm banking on one or the other happening, if both happen it's just a bonus.

I'm funding the deal/rehab with a cash offer using my HELOC and a 0% loan from a family member who will get 50% of the cash flow and 50% of the equity. After we refi they will leave about $30k and I'll leave about $15k in the property.