Posted by Gary on February 27, 2001 at 21:31:08:
First, look at your cap rate (net operating income divided by asking price of property)- it’s about 11% and that is not high enough for all these properties and the time it will require in terms of dealing with turnover, maint., etc…you need at least 13% or higher. That means a reduction in asking price by 15-20%. I would go for this if rents are current, big ticket maint. problems are manageable (furnaces, roofs, siding)and you have a good reserve built in your expenses for these, owner would hold second at reasonable rate (9-10%) and there is potential to raise rents. How much is owner holding in security deposits? can you use this as downpayment? This will only work if units are easily rented and your security deposits coming in can pay for the deposits of the tenants leaving; need to check on state laws, too, as some require deposits to be held in separate escrow account…this is a big one that needs much thought. Can you buy just a few of the properties, the ones with the best cap rate and the lowest vacancy rates?