Deal Analysis - 5plex

[Michael Roetzel]

Looking at offering $400k on nice 5plex, remodeled 2017. There are a few relatively minor fixes, but not expecting anything major. It could use some better landscaping; if I wanted to do that, that would be the major remodeling cost.

Currently units are occupied, renting at $650 x4 and one at $850. Landlord is paying water/trash, at $90 each/month. Tenants in the $850 unit, which is 1650 square feet, are moving out soon. So current rents are $41,400/year. 

Taxes - $2,000

Mortgage - $20k/year

Insurance - $3,750/year

Maintenance & Capex = Estimate at $2,500

And last, it's on septic. So I'm putting in $400/year for septic maintenance.

So, with 20% down, I'm showing  a cap rate of 10.2%. The kicker is those rents are below market. The place is very nice, located just outside the city in a desirable area (high-end custom home area), and just a couple minutes drive to the nearest Walmart or school. If the rents go up $100 on each of the 4 smaller units and $250 on the larger unit (and this still may be below market), then the cap rate is 19.95%. 

So...pick me apart, please. This looks like a good deal. What do you think?