4-unit resid. zoned York PA, analysis

[John Schmiesing]

Hi everyone,

Wanted some feedback on this deal in York PA.

Property is a 4-unit with a garage and storage space above garage w/ separate entrance, ie could be individually rented to 6 tenants of ~6'x6' storage units. Each unit is efficiency, however, so commands lower rent.

Currently 4 units rented, only 3 with written lease. 1 is verbal. IMO, this one is useless to me from standpoint of making an offer. Do you agree? Garage and storage spaces are not rented.

Here are current numbers (have included 4th unit rent for illustration purposes and assumed 10% vacancy):

Ask price: $99k

Revenue annual: $18,360

Non debt exp: $13,111 as I assume ppty management later, and the owner's electric meter serves garage and storage units also.

NOI: $5,249. Therefore @ 10-cap, ppty values at $52k.

debt svc (30 yr fixed @ 5.375, 25% downpmt) annual: $3,024 (this assumes I use cash for downpmt instead of HELOC so have one debt to pay)

CFBT: $2,225, therefore $~47/unit/month

There are definitely issues w/ the property that would need to be address although have not had inspector into the house. Est'd costs $4k

Future re-positioning:

If I increase rents and rent out the garage and the storage spacese I feel annual income can increase to $22,140 (10% vacancy incl).

This brings NOI to $8,651.

However of course this would take some effort, money, and re-management.

I have offered $60k and been rejected.

Seller is apparently in California and has hired ppty management group here to manage. I wonder why they haven't taken care of the 'verbal' lease...? Seller paid $92 in 2001 and refi'd in 2005 I believe. My guess is they are upside down now and my offer does not cover his debts. I feel that in the long run this property will under-perform and will become painful for the current owner.

Any thoughts / advice is appreciated! Thanks all,

John