I sell mortgage notes all the time that pay 12% annually and have tested the waters with many other rates to end up at 12% again and again.  

The current owner is shopping it around for 1.35m (7cap) and the proforma numbers are as followed: ANNUALIZED INCOMEActual MarketGross Potential Rent $191,639 Less: Vacancy ($5,749) Effective Gross Income $185,890 Less: Expenses ($91,497) Net Operating Income $94,393 Debt Service ($65,592) Net Cash Flow after Debt Service $28,801 Principal Reduction $17,403Total Return $46,204 ANNUALIZED EXPENSESActual MarketProperty Management Fee $9,582 Replacement Reserves $5,250 Building Insurance $6,712 Maintenance $12,560 Taxes - Real Estate $36,296 (37220 w/o exception)Utility - Electricity $2,453 Utility - Gas $12,369Utility - Water/Sewer $6,275 Total Expenses $91,497 Expenses Per RSF $8.39 Expenses Per Unit $4,357I did some additional digging and found that they offer Wi-Fi for the building (I talked to a rep and said providing service for a building that size should run 285 a month) and the trash was left off which runs about 285/month.

Operating expenses include utility, payroll, landscaping, pest control, taxes, insurance, repairs and maintenance to name a fewThese are expenses, different from capital expenditures such as fridges hot water heaters and flooring.  

I can't imagine you'd want to take it as-is with the tank, because if you try to remove it after buying and find the soil is contaminated, and possibly contaminated the ground water, you could be looking at a bank-breaker of a job.  

We have just made our first claim after major water damage in a rental.

Properties in good condition that are priced right are going to sell quicklyThe one caveat with a HUD home as there can be a small issue such as a faulty shut off valve that will prevent a buyer from activating the water and prevent an owner occupant from obtaining an FHA,VA,FNMA loan and thereby drastically decreasing the pool of buyers and thereby creating opportunities for investors. 

Are all units run off one water heater, or is there one for each unit?

They will know what the average is for water, snow removal, repairs, janitor, etc.  

If you incorporate these items in your tenant application, it will help you to screen applicants more efficiently and filter out the deadbeats.Good luck!

Are these dangerous waters to wade through?