Are sellers out of their minds or am I missing something?
Hi all, so I have been scouring MFs listings that I see in my area and find that it is almost impossible to make the numbers work. I am curious to get your thoughts on a property that popped up on Loopnet. Now, I know MLS, Loopnet, etc. are not necessarily the best sources, but I am just baffled by the numbers that I see. So much so that I wonder what is going through the seller's mind. Are they 1)Completely oblivious, 2)out of their mind, or 3)are looking for a sucker. Anyway, here is the deal that I saw today. On the left is what the listing agent (who I think is also the owner or at least a partner) provided and on the right is my analysis. I would appreciate all of your general thoughts on this seller's motivation (or lack thereof) and on my breakdown of the costs below. Granted, I have not seen the property or verified all costs so this is just a rough sketch. Am I not seeing something here??? Thanks.
Property Detail
6 unit multifamily in Broward County, Florida, 5 1/1's and one 2/1, Owner pays water, garbage and electric (I assume for common areas). From the pictures the property looks clean and well maintained. Based on tax records looks like it was last sold in 2011 for $300K or so. Current rents average around $760/month/unit. I looked on Rentometer and looks like the 1 bedrooms are at or near market, but he 2 bedroom could be a few hundred below market. 3 of the units have one year leases, other three are on month to month.
Financials
Asking price $450,000
Listing/Agent #s My numbers
Gross Rent 4,560 4,560
Taxes (620) (713) – I know tax rate is ~1.9% of purchase price
Insurance (190) (375) – Owner provided seems very low especially given hurricane, flood and the high rate of insurance in Florida
Utilities (750) (750) – took as given, but would verify
Mtce & Misc (320) (456) – Owner low, assuming 10%
Capex reserve (0) (456) – assume 10%
Prop Mgmt (0) (456) – assuming 10%
Vacancy (0) (364) – assuming 8%, appx 1 month
Total Exp. (1,880) (3,570)
NOI (Mnthly) 2,680 990
NOI (Yr) 32,160 11,880
Cap Rate% 7.1% 2.6%
Now, if I assume a traditional commercial loan, just for comparison purposes I’ll assume I put 25% down, plus 3% closing costs (not sure if this is reasonable), and am assuming no immediate repairs needed. Total initial out of pocket is $126K and total loan amount is $337,500 @5%.
Mnthly PI $1,812 $1,812
Mnthly CF $868 ($822) – negative cash flow! All you need is a major repair for this to happen.
Annual CF $10,416 ($9,864) Ugh! Imagine losing $10K a year
COC 8.2% -7.8% loss!
Hope this makes sense. If it doesn't let me know your thoughts. I would appreciate your feedback if I am missing anything, or am being too conservative w/ my assumptions. Based on my numbers not sure I would pay more than $250K for this property. Then again, I do have a ton of reserves here that if the property is well maintained can convert to cash flow. I look forward to your comments.