Re: Found 12 unit property…need help - Posted by John Butler(stl)
Posted by John Butler(stl) on February 22, 1999 at 10:09:16:
Doesn’t to seem to be too much of a deal. You should look at his actual expenses, but in general on a multi-unit property expenses and vacancy will be 45% of gross rents. Using your numbers, gross annual income would be $69,120. Subtracting 45% for vacancy and expenses leaves a NOI of $38,016. This gives a CAP rate of 6.36%. Normally an investor should be looking for properties with a CAP of 12% or higher. This means you shouldn’t pay more than $316,666 for this property. Read some of the how-to articles on commercial property valuation if you don’t understand what CAP is. I can almost guarantee you will have a break-even or probably negative cashflow even if you got this property for $500,000. HOWEVER, these %'s I have given are rules of thumb and you should verify the actual numbers from the current owner’s Schedule E and this could impact the actual value.
Another way to look at it is to take the gross rents of $5760/mo. If you somehow got a bank to finance all $600K, then your note at 8.5% would be $4613/mo. This would leave you a little more than $1000 to pay ALL repairs, vacancy, taxes, insurance, common utilities, management and any other expenses.
Take a good look at the numbers before you decide to proceed.
Don’t mean to rain on your parade, but don’t want you to pick up an alligator,