Help vet this property

[Jon W.]

This is a 6 unit multi (1 2bd rents for 650 and 5 1bd rents for 465-535 - motel style building). Sellers say I can add value by challenging assessment (assessed too high) and can convert attached garage to 7th unit (conceptual plans included). Financing throws off ROI given it is a commercial property and shorter term. Historical vacancy is low. I built 8% into my numbers but they claim the average is 5%. All numbers are actual (from seller) except for vacancy, insurance, and PM which are my costs.

What do you think? If I can improve the property I can increase my ROI. Price is firm. I also estimated my interest rate on the loan but have a relationship with a local bank and can get financing. Updates include: newer roof, newer water heater, and 75% of units with new appliances. Blue collar area of town.

Price $175,000
25% Down Payment $43,750

Potential Rental Income $38,760
Less Vacancy & Credit Loss $3,100
Gross Operating Income $35,660

Expenses
Real Estate Taxes $7,860
Insurance $1,975
Repairs & Maintenance $2,414
Hot Water Heater Gas $1,850
Water $2,715
Miscellaneous $300
PM $3,000

Total Operating Expenses $20,114

Net Operating Income $15,546
Cap Rate 8.88%

Holding Cost (20yr @ 7%) $12,216.00
Cash Flow $3,330.00
ROI 7.61%

DSCR 1.27