What am I Doing Wrong??

[Kobi Walsh]

Hey BP, 

I'm looking into a 455k 11% cap turn-key 7 unit fully managed off-market property in Southern Chicago, and I'm trying to figure out if I'm doing something wrong in my analysis. The property is in a C grade trending towards B grade neighborhood, close to shopping, public transport, and a solid high school, has all new windows, updated roof, masonry, electric, and rear porch, and one of the 7 units was fully rehabbed recently. The building consists of 4, 2bd 1bath units, and 3 1bd 1 bath units. 2 units are section 8 and the rest are cash paying tenants. All great tenants that have been in the property for 5+ years, and are on the older side with good rent history. All units are currently tenanted with a monthly rent roll of $6,416. Professional management of the property is currently in place and can stay in place after the sale making for a smooth transition. Also good value add opportunity if rehabbing the other units could get the rent roll to about $7,500/mo.

By the bigger pockets calculator, I'm seeing the property at 11% cap, ~30% cash on cash ROI with ~$2,500 monthly cash flow. All numbers I am getting from the provided P&L.

Is this a solid deal, or am I doing something drastically wrong in my analysis?

Thank you for your help!

Kobi

[Omar Khan]

@Kobi Walsh I would question the #s provided by the seller. Hardly any Class C property is yielding double digit cap rates. Usually these are either properties in war zones or with some serious issues (rent control, structural damage, bad tenant profile). 

I would try to get comps from a broker (independent to the selling one) and verify all information from multiple sources. I would also increase your vacancy, capex and repairs # at the minimum as they are very low.