Hi, glad I found this site and these forums, lots of good information here. I’m just getting started with the idea of investing in real estate and decided to start my research with apartment buildings or mobile home parks (as there are quite a few in my area). I do realize that it will be a while (3-6 months) before I start seriously looking at properties. I have looked at several properties in my area just out of curiosity and this brings me to my question.
I looked at a property today that was 12 units ( 6 buildings) each unit is rented for $850. Is there a way (formula) to figure out what is a “reasonable” price for this property? I realize there are probably a million factors, but “all things being equal” what would be considered a good purchase price? They are asking $880,000.
Also, if I get my own financing are there certain guidelines for a deal this size as it relates to the size of down payment and length of the loan?
To get a ball park you need to understand the income for the property and the expenses. The property has little to no value other than its ability to produce an income after operating expenses. I am ignore a change of use when I say that.
As this is a 12 unit property you could quickly add up the rents, multiple by 12 to get the yearly figure and then assume 40% to 45% as a very, very crude way to calculate the expenses. Subtract the expenses from the income and you have a crude NOI (Net Operating Income). The NOI is then capitalized (divide the NOI by the cap rate) to determine the theoretical value.
You ability to get financing and conditions on the financing are something you should ask a mortgage broker who handles commercial property. The exact property type and other factors are going to matter. These sounds like duplexes. Could they be sub-divided and the financed with residential financing? Are there any other issues? A local bank might be interested when other lenders are not.