Opinions on deal I'm looking at

[Virginia Jones]

I've come across a 6-unit building for sale. 5 of the units are 2bd/1ba and rent for $600 and 1 is an efficiency apartment with one room and a bathroom that has random month to month for around $200. I'm just using $3,000/mo since the rental of the small unit is so sporadic. 

Asking price is $275,000 and it appraised for $288,000 in 2014. 

Brick building built in 1941. Owner pays water/trash/sewer & natural gas for water and heat. A conservative average monthly cost for this is $500/mo. The tenants pay $1 per load for use of the washer and dryer so that helps out a bit. 

Taxes/Insurance are $252/mo. 

So, total fixed costs per month totals $752. It has a 3 year old metal roof and new windows. 

The owner is willing to owner finance with 20% down at 4% interest. 

Do you think this looks like a good deal? I have a duplex and SFH that I rent out but have not had experience with this type of building. I'm thinking I would want to offer $240,000. Does the $275,000 seem fair?

[David Cruice]

@Virginia Jones running some quick and dirty back-of-the-envelope numbers on what you've provided above, you're coming out at $2,448 NOI/month. Times that by 12 and divide that by the seller's asking price and you come out with a 10,68% cap rate, which is very good. However, it today's hot RE market that sounds too good to be true. If you haven't done so already, ask the seller to provide you with his trailing-12 P&L statement and his P&Ls for 2016 and 2017. Be VERY diligent in your due diligence and make sure all his numbers (especially is expenses because sellers love to hide their expenses) make sense. Also, if you buy the property, your property taxes are going to increase because of the new, higher sale price, so go to the Property Appraiser's website and see what their MIL rate (usually a combination of both the county and city), Finally, run your numbers through the BP Rental Property Calculator. If all pans out, it looks like you've got a very good deal on your hands (especially with the seller financing).