Looking for underwriting feedback on a stabilized 5‑unit portfolio in Blue Springs, M
Blue Springs, MO · Member since 2013 · 6 posts · 3 votes
Looking for underwriting feedback on a stabilized 5‑unit portfolio in Blue Springs, M
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Accountant · San Francisco, CA | Remote · Member since 2026 · 52 posts · 30 votes
1wHi Kalene, leases locked through 2027 give you decent near-term visibility. A few underwriting items:
Expenses. The $14k covers only taxes and insurance. Even with tenant-paid utilities and lawn, a small portfolio still carries management, maintenance, and capital reserves. Load those in and operating expenses usually run 30 to 40 percent of gross, toward the lower end here because tenants cover utilities. On this deal that pulls NOI closer to $60k and the real cap to around 5.6 percent, not 7.37. The 7.37 is a taxes-and-insurance-only number.
The 17-year tenant. Long tenancies often sit below market because owners keep annual bumps small to avoid turnover. Pull the actual rent versus market on that unit. It is either upside on rollover or a rent that resets down if the tenant leaves and the unit needs work.
Basis. $1.06M on five units is $212k per door. Check that against recent local trades and confirm current rents support it.
One question back: is the $92,100 gross scheduled rent, or effective after vacancy and credit loss? That changes the NOI.
Otherwise, solid package. Rebuild the pro forma with normalized expenses and you will see the true cash flow.
13 Replies
- Accountant · San Francisco, CA | Remote · Member since 2026 · 52 posts · 30 votes1w
Hi Kalene, leases locked through 2027 give you decent near-term visibility. A few underwriting items:
Expenses. The $14k covers only taxes and insurance. Even with tenant-paid utilities and lawn, a small portfolio still carries management, maintenance, and capital reserves. Load those in and operating expenses usually run 30 to 40 percent of gross, toward the lower end here because tenants cover utilities. On this deal that pulls NOI closer to $60k and the real cap to around 5.6 percent, not 7.37. The 7.37 is a taxes-and-insurance-only number.
The 17-year tenant. Long tenancies often sit below market because owners keep annual bumps small to avoid turnover. Pull the actual rent versus market on that unit. It is either upside on rollover or a rent that resets down if the tenant leaves and the unit needs work.
Basis. $1.06M on five units is $212k per door. Check that against recent local trades and confirm current rents support it.
One question back: is the $92,100 gross scheduled rent, or effective after vacancy and credit loss? That changes the NOI.
Otherwise, solid package. Rebuild the pro forma with normalized expenses and you will see the true cash flow.
- 1wGregory AcsPro MemberLender · MD · Member since 2025 · 153 posts · 57 votes
A 7.37 cap can definitely be worth a closer look, but I'd want to evaluate it in the context of today's financing costs and the property's long-term potential. With a fully occupied property and long-term tenants, I'd also consider whether current rents are at market or if there's room for future growth as leases renew. That can make a meaningful difference in the overall return.
I'd also stress test the deal with a few financing scenarios and conservative assumptions for future expenses and vacancy. If the numbers still work under less favorable conditions, that's usually a good sign. If you'd like to compare financing options or pressure-test the underwriting, I'd be happy to help.
- Blue Springs, MO · Member since 2013 · 6 posts · 3 votes1w
If you want to give some options to pass on to potential buyers that would be fine. I am not looking to buy these myself. I'm trying to sell them.
- Blue Springs, MO · Member since 2013 · 6 posts · 3 votes1w
Hi Kasing, Thank you for your response!
The current owner manages the property themselves so they don't have management fees. The property management companies in this area are charging between 8% and 12%. They have recently updated the units over the past few years but didn't give me maintenance costs. They did things like flooring, paint and one new roof. The units are in excellent condition with potential of painting the exterior of one of the units within the next 2 to 5 years. Its fading but not peeling or chipping. Yes, there is room for improved rent on all of the 3 bedroom units. The 2 bedroom unit is also under rented. If rents were increased to average market prices, the gross yearly would be closer to $98,916. Average rent for a 3 bedroom townhome is sitting at $1702 monthly. The current rent is $1600 monthly. The 17 year tenant is paying $1475. I believe the NOI would be closer to $75,025 with property management at 10% and the cap rate would be....7.08%
Per AI, the original cap rate (7.37%) was correct for a self‑managed portfolio, which is how it currently operates.
Adding PM drops the cap rate slightly to 7.08% (if increaseing rents to the current median rent for a 2 or 3 bedroom townhome), which is still strong for Blue Springs given:
100% occupancy
Tenant‑paid utilities
Tenant‑maintained lawn
Long‑term tenants
Leases through 2027
Updated interiors
Low turnover
Cul‑de‑sac location
The average tenant income is $58,000 yearly
I feel this is still a competitive stabilized cap rate for the Kansas City metro and especially Blue Springs, MO. Do you?
- Accountant · San Francisco, CA | Remote · Member since 2026 · 52 posts · 30 votes1w
Kalene, this is a much stronger picture, and adding management was the right move. A few things I would still fold in before you call 7.08% your number.
That NOI still carries only taxes, insurance, and management. Two costs are missing. Maintenance and repairs run real money over a hold even on updated units. And you named the capital yourself: exterior paint in the next two to five years, and roofs age. Set a reserve for that, roughly $250 to $300 per unit per year, so the big items do not come straight out of your return. Fold those in and the NOI, and the cap, come down.
Second, 7.08% is built on market rents of $98,916, not what the property earns today. Getting there means moving the 17-year tenant from $1,475 toward $1,702, about a 15% jump on someone who has stayed 17 years. That is real upside, but underwrite it both ways: the case where they accept it, and the case where they leave and you turn the unit. One more thing from your own numbers: at $1,702 on a $58,000 average income, tenants are near 35% of gross income, which is the top of the affordability band. That is the ceiling on how much further rents push.
So I would carry two numbers, not one. Going-in cap, on today's actual rents with full expenses, which sits below 7.08%. And stabilized cap, after you raise rents and costs settle. Both belong in the decision.
On whether 7.08% is competitive for Blue Springs specifically, I will not hand you a number I cannot stand behind. Local comps are a broker or appraiser call. What I can tell you is that a cap rate only means something once the expenses under it are complete, and this one is not there yet. Rebuild the NOI with maintenance, reserves, and a vacancy factor, then line that clean number up against recent trades. That comparison is the real answer to your question.
Happy to keep talking it through.
- Mexico City · Member since 2026 · 4 posts · 1 vote1w
One point I haven't seen mentioned: the $14K in taxes+insurance reflects the current owner's existing tax assessment, which has likely gone unchanged for years. If a buyer pays close to $1.06M, many counties reassess the property at the sale price, which can significantly spike the property tax the following year — sometimes 2-3x the current amount. It's worth any potential buyer checking Jackson County's (Blue Springs) reassessment rate and running the NOI with the projected post-sale tax, not the historical one. That can move the real cap rate more than it appears at first glance.
- Blue Springs, MO · Member since 2013 · 6 posts · 3 votes1w
Thank you. That is a valid point. We reassess here every odd year. Yes, they do reevaluate the taxes. I will run it through the title companies rate calculator to see what it reassesses at. Thanks
- Real Estate Agent · Kansas City · Member since 2018 · 4k+ posts · 3k+ votes1w
Happy to connect. My office is in Blue Springs
- 1wMaurizio PisciottaPro MemberDelray Beach, FL · Member since 2024 · 22 posts · 11 votes
The 7.37% cap definitely is not bad, but I’d probably underwrite this a little more conservatively before getting too excited.
The $14k of expenses looks like it's basically just taxes and insurance. I'd still account for repairs/maintenance, CapEx, vacancy and probably management even if you plan to self-manage. Long-term tenants and 100% occupancy are great, but I wouldn't assume that continues forever (even if till 2027 is good!).
At $92.1k gross income, I’d run a few scenarios with more realistic operating expenses and then see what the cap rate and cash flow look like at today’s financing terms.
The long-term tenants are a positive to me, but I’d also check how their current rents compare with market rent. A 17-year tenant could mean great stability, but potentially also a pretty large gap to market. I’ve had similar situations, and once those tenants moved out, the units needed a lot of work because they hadn’t been updated in years, so I’d factor that into the underwriting too.
Overall it looks interesting, but the expense assumptions are probably where I’d spend most of my time before deciding whether $1.06M makes sense.
Hope it helps and good luck!
- Real Estate Broker · Kansas City Metro · Member since 2015 · 2k+ posts · 1k+ votes1w
I saw this hit the market. The key factor is going to be the HOA and what it eats into your profit and what they provide. $200k per door for a duplex is a bit strong for blue springs unless rents are at least $1600 per side or can easily get there with low capex. Are you self managing or having someone manage as that dramatically impacts cap rate.
- Blue Springs, MO · Member since 2013 · 6 posts · 3 votes1w
Hi Alex, There is no HOA on these. The tenants take care of the lawncare, trash, snow removal, utilities all themselves. The rents 3 of the 5 3 bedrooms are $1675 right now. The long term tenant of 17 years is paying $1475 and the 2 bedroom is paying $1175. The current owner is self managing and says all the tenants are very solid and pay on time.
- Blue Springs, MO · Member since 2013 · 6 posts · 3 votes1w
If a property manager is needed there are several in the area. They are between 8% and 12%
- 1wAshish AcharyaBusiness MemberCPA, CFP®, PFS · FL · Member since 2017 · 5k+ posts · 3k+ votes
Kalene, the 7.37% cap looks attractive at first glance, but I’d want to know what is actually included in that expense number before relying on it.
With $92,100 of gross income and only $14,000 showing for taxes and insurance, the current cap rate appears to assume very little for vacancy, repairs, maintenance, management, CapEx, leasing costs, or turnover. Even with 100% occupancy today and tenants paying utilities and lawn care, I'd still normalize those expenses because you're buying the future performance, not just the current snapshot.
The long-term tenants are a positive from a stability standpoint, but I’d also compare each lease to current market rent. A 17-year tenant can mean extremely low turnover, but it can also mean there’s a meaningful gap between in-place rent and market rent. I’d want to understand that before assigning much value to the “100% occupied” piece.
I'd underwrite the portfolio two ways: as-is cash flow using the current leases, and a normalized version with realistic vacancy, repairs, management, and CapEx. Then see what the cap rate and DSCR look like under both.
From the tax side, if you buy the five properties as a package, I’d make sure the purchase price is allocated properly among the individual properties, land, and buildings. The recent roof and other improvements also matter for depreciation records. Depending on the final basis, cost segregation may be worth evaluating, but only after confirming the resulting depreciation losses are actually useful in your tax situation.
For me, the bigger question isn’t whether 7.37% is competitive. It’s what the cap rate becomes after you normalize the expenses and rents.
Happy to connect!
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