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.