$1.6 million at 8% full amortized for 30 years is $345 a unit. With $268 in actual stated expenses, plus $46 a unit you're at $659. I don't see anything allocated for capital items.
And you're not going to get that last $160k for 8%. Hard money loans at a max of 70% are 15% plus four points around here. That last $160K if FAR, FAR riskier than any 70% HML. I'd be looking at 24% (which probably exceeds CO usury laws) and only a year or two interest only.
Really, what I would be looking for to do a deal like this would be a plan to sell the property in a few years and to get a significant cut of the sale price. I might consider something like 12% interest only for 3-5 years.
Unfortunately, that leaves you cash flow negative in a big way. The loan on the first 90% amounts to $311 a month per unit. Plus vacancy and claimed expenses, and you're at $625 per month per unit. The IO payment on the last $160K is $47 a month, so now you're at $672 a month. Compared with $575 rents (which is what you're locked into at the start), you're losing $97 a month per unit.
Lets be a little more precise. You say vacancy is 8% out of 34 units. I guess that's three units currently vacant. So, lets ignore the vacancy allowance to do the math. That puts your total nut at $626 a month. On the 31 that are rented at $575, you're losing $51 a month. On the three vacant units, you're losing $626 a month. That makes your total monthy loss $5351. (I'm using more exact numbers in my spreadsheet, so there may be rounding errors.) If nothing changes for the first year, you would be right at $41,438 in total losses. The $38K in other income does make up for that, almost. But nothing left for capital. So any improvements are going to have to come from somewhere else.
You're never going to be at 100% occupancy, and if you start raising rents, even by $25 a month, your vacancy is going to go up. Not as bad as if you try raising it $75 a month, but there will be a hit even at $25. And at $25 a year increase, you're going to be a LONG time getting up to market.
Lets consider the potential future value. From this discussion I get:
Gross scheduled rent: $234,600
Vacancy: $18,768
Claimed expenses: $109,344
Other income: $38,000
Calculated NOI: $144,488
Calculated cap rate 9%
Now 9%'s not a great cap rate, frankly. On a commercial property you make the difference between your cap rate and the interest rate on the financed portion plus the full cap rate on your down payment. Even that overstates income because you have to make principle payments, too, which eat into your cut. Yeah, you'll get them back when you sell, but while you're holding they're just as painful as any other expenses. So, if you were 90% financed at 8% and 10% financed at 12%, you're making 1% on 90% and -3% on 10%, which boils down to 0.6% of the $1.6M in return, and you have to cover the principle payments out of that $9600 return. Since you don't have the 20-30% of your own cash to put into this deal, this is going to suck money out of your pocket each and every month.
Nevertheless, lets use the 9% cap and the "to be" situation to see what its worth. Lets assume you get all units up to $750 and get the expenses in line with the 50% rule (they're well over now, 55% without including capital items). Now I get:
Gross scheduled rent: $750/unit/month
Gross scheduled rent: $206,000
"Expenses": $153,000 (50% rule, include vacancy and capital)
Other income: $38,000
NOI: $191,000
Cap rate: 9%
Implied price: 2,122,222
Debt service: $146,000
Cash flow: $45,000
Cash flow/unit/month $110
So, at that point its actually a decent deal. And, you could sell and pocket about $500K in profit. As a turnaround, and assuming you can really get the rents to $750 and you can get the expenses under control, this would work. I see some pain on the way to getting there, and a pretty significant risk of you getting into a bind and losing the property, since you're so highly leveraged and have nothing in reserves. Were I taking that top end piece, I'd want to give you enough additional cash to give you some working capital. That would hurt your cash flow position even worse, but at least you woudl be able to handle a hiccup when it came along. I'd also want to see a plan to get those rents up as quickly as possible, and to sell the place and let us both walk away with the cash. Or, if you want to keep it, a plan for you to refi and get my chuck of the backend back to me. An 80% refi would net you about $1.7 million, so you could potentially give me back $100K (plus my payoff), less the refi expenses ($50K?) plus the paydown you've made on the first and second (about $70K after five years).
I guess the bottom line is I see some potential here, but you need more cash than you think.
Have you done a deal like this before? I get the impresion you have not.
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