Posted by Tim (Atlanta) on March 28, 2000 at 07:10:25:
Lets run some CAP numbers here. I know the property is small, but it should be considered as a commercial property since it has more than 4 units.
First, the rent : (4*300) + 375 = $1575 per month income. Yearly income of $18,900. Estimate expenses at 40% ($7560), giving you a Net Operating Income of $11,340.
Now, what kind of CAP rate are you looking for? For a 10 CAP, the price would be $113,400. For a 12 CAP, the price would be $94,500.
You will need to get the expenses on the property from the current owner. See if you can get their Schedule E for the last couple of years. This will give you a good idea of how the vacancies and maintenance have been going. Make sure that whatever financing you get, you can make a comfortable cash flow. If it were me, I wouldn’t settle for less than $150 per unit per month after vacancies and maintenance were taken into account. But that’s just me, you may be willing to settle for less.
Posted by Dan in MS on March 27, 2000 at 19:08:27:
I found a 5-unit apartment complex that is listed for $113,000. It consists of 4-1br/1ba apts and 1-2br/1ba apt.
The 1-br apts rent for $300 a month and the 2-br apt rents for $375. I haven’t run any cash flow analysis yet, but does anyone know if this is a decent cash flow generator assuming the $113,000 is FMV. It is not listed with a realtor, so there could be some negotiations in the price. What kind of cash flow could be generated and what, if any, would be a good price to offer on this property?
Posted by ray@lcorn on March 28, 2000 at 07:14:39:
Dan,
You have now left the world of FMV. This is an income property. The value is determined by the cash flow. No one can answer your question without knowing the actual income and expenses. Do not accept “potential income” or estimated expenses. See the real numbers, or walk. A “good price” to offer will be determined by applying your criteria for return on investment to the operating performance of the property.