Quote from @Neel Patel:
Hey everyone, I got my first multi-family deal by called calling the owner and need some tips on how to negotiate the deal. The owner is currently asking $1000000($83333 per unit) for 12 units brick apartment in a rural town with 7K population. The total rent is $6995 for 12 units, which averages $577 for a unit. The rent can be increased to $625. The demand for apartments is strong in the area.
Approximate Expenses: $2,416 (Maintenance: 5% of the rent, Capital Expenditure: 5%, Vacancy Rate: 5%, Property Management: 0 since I will be managing it. I was going to set it to 5% but figured this is my first deal and don't want to miss on the right property)
NOI: $4,994
Cap Rate: 6%
COC: 1.1%
I was thinking to make around an $800K offer. The reason why I am thinking to give that offer is that I am not counting management fees and the rents don't increase too much in the area. Feel free to give me any other tips that you might think will be useful.
Thank you!
Hi! Neel,
Congratulations on finding your first deal.
I think you should take PM into account for underwriting purposes. As it is a small property, I suggest you take 10% into consideration.
I also see that you have not taken into consideration Loss to Lease and Nonpayment into consideration.
What is the interest rate that you are using for underwriting, have you factored in the rise in interest rates?
What is the condition of the building?
Does it have any differed maintenance?
How old is the property?
What kind of plumbing does it have (cast iron, PVC, CPVC)?
What kind of electricals does it have (Aluminum, Copper)?
When was the roof changed?
What kind of value add is needed to bump up the rents?
Do you plan to hold this property or sell it over a period of time? If yes how long is the hold?
