Hi all,
Offer was just accepted on my first deal and I am getting cold feet. Can you wise folks double-check me, please? Here are the details:
8 unit complex. All 1 Bed/1BR units each renting for $400. Comparable rents in the area are $450-650. There is much deferred maintenance and I believe rents could be increased to $500 with minor repairs/updates. Still, current projected rent is $3,200/month.
Current owner (in keeping with the deferred maintenance theme) has very few financial records but does prove up the following actual numbers:
-Property taxes, $1,900/year
-Insurance, $2,320/year
-Owner-paid utilities, $3,429/year
Estimated:
-10% vacancy
-10% management
-15% for maintenance/repairs, and
-Reserving $700/month for CAPEX
BOTTOM LINE is $34,560 net rental income less $24,700 expenses = $9,900 NOI.
Offered $95,000 with $10,000 reimbursed at closing for immediate CAPEX (roof and A/C units). 20% down, loan on balance ($76k) at 6% for 30 years.
Cap rate with $400/month rents is 10.1%, cash ROI is 20.3%, and annual cash flow is $4,400. I know that's only $45/month/door but, again, I believe rents could be raised. Once I get them up to $500, cap rate becomes 16.7%, cash ROI is 49.9%, and annual cash flow is $10,916 ($113/month/door).
Are my estimates way off? Will raising rents to $500 be easier said than done? Am I missing anything?
