Investment with 12% Cap rate but not the greatest apartments/tenants

[Danny Colacicco]

So in seeking wholesale deals, I came across an investor looks to sell two apartments with 5 total units in a decent area of Baltimore (Greektown). All of the apartments are currently being rented, however, when viewing them, the apartments were dated/not in the BEST shape and the tenants (not all) had very poor hygene. Nonetheless all teneants have been living there 1.5-4 years and do not want to leave. I have negotiated the property to a cap rate of 12% (after taking out all fixed/variable costs and my fee) but I am still weary of putting it under contract as I am nervous that I wont be able to find an end buyer given the condtion of the property/tenants?

Can anyone give any advice as to how they would proceed with these? Would you put them under contract?

Thanks in advance for the advice!

[Joel Owens]

Landlord pays utility go 60% costs of expected gross rents.

So if gross rents were 30,000 annually times (.40) = 12,000 NOI

100,000 sales price would be a 12 cap. Putting your fee in maybe 95,000. Then if 10,000 of immediate capex is needed that comes off so 85,000 offer price.

When you get to the real numbers you might find you are not marketing a 12 cap. Remember even if seller is self-managing they are buying a job and when selling the buyer pool will be reduced as many buyers use a PM and include the cost when buying.