Looking at new deal, looking for input

[Bryan M.]

Hi Guys,

I havent posted in awhile so it is nice to be back. Anyway I am currently analyzing a property I am interested in and it looks attractive at the right price. It is a 12 unit mixed building with 9 unit rental apartments and 3 units commercial space. The property is in good condition and is located in the center of a large town.
The seller is looking for 650k but may be negotiable and possible willing to owner finance. The numbers are below.

monthly income 8,400 at 100% occupancy

monthly expenses 2,200 including taxes, insurance, water and sewer.

I have read Mike Rossi's book and like his approach to expenses being 50% of gross rents when analyzing a property. What do you guys think just looking at the general numbers I included above? I have a number in mind that would work for me and it is much lower than asking price. Any thoughts?

[Brian Morgan]

Using the Income Approach based on the numbers you gave.

$100,800 Potential Gross annual income
($5,040) 5% Vacancy Factor - could be more
-----------
$97,760 Effective Gross Income
($26,400) Taxes, Ins, Water, Sewer
($ 9,576) 10% Property Management
($ 9,576) 10% Maintenance
($ 1,000) Misc Fees, snow removal etc.
------------
$49,208 Net Operating Income

$49,208 @ 8% Cap Rate = $615,100
$49,208 @10% Cap Rate = $490,208
$49,208 @12% Cap Rate = $410,066

The numbers could slightly be skewed by higher/lower vacancy factor (5% is the lowest I would ever use). Higher/additional expenses or additional income from laundry services etc.