How much should I offer for this Multi-Family?

Question

Hello,

The current asking price of a 22-unit complex is $1,200,000.  The Yearly income is $147,204 and the expenses are $32,808(Insurance, Taxes, and Utilities).  If I want to include a 10% vacancy($-14,720) and 10% repair($-14,720) bringing my total expenses to $62,248.

What should I offer for the property?  I have not included any debt payments of management(me) fees?

Tom Mole · Answer

@Hunter Estess, the numbers you originally posted would give you an NOI around $85k. As you pointed out, you haven't yet discussed all of the expenses you would expect to encounter, so I expect your finally NOI to be even lower. Debt service is NOT an expense in this calculation, so we'll get to that in a minute.

You've left out the market you're shopping in. What sort neighborhood is the property located in? What is the market cap rate? What condition is the property? Are there any cap-ex repairs needed now or in the near future? What is the market vacancy rate? What do the crime and employments stats look like?

So, back to the funding issue. What sort of ROI are you looking for? Based on the number in your original post, you're looking at 7% cap rate. That's pretty low for 5.5% financing, particularly considering that you're NOI hasn't hit bottom yet. How much cash are you planning to park into this deal?

A lot more information is needed to give you anything like a reasonable evaluation. I wouldn't stake my reputation on any particular number at this point. The simple answer to how much to offer is "less, much less". For my tastes, unless and until I knew the answers to all theses questions, I would not offer more than half of the $1.2M ask.

You can add my 2 cents to the down payment.  :D

Let me know if you want to drill down any more on this. I'm happy to help.

Happy holidays!

Hunter Estess · Answer

Thanks Dawn,

I agree that the asking price would make this a bad deal, but I am not going to give asking price.  I am trying to calculate what I should offer.  I believe I should offer around $835,000.  This would allow me to get $3,900/mo(22 units @ $150each) and still have enough money to pay the mortgage based on 5.5%

Dawn Jett · Answer

Just based on the numbers you listed, I don't see this as a good deal at all unless you offered

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How much are you putting down?

What's the interest rate and term of loan?

What's the management fee?

Current yearly income of $147,204, is that just for rent? Is that with all units rented? Is there value-added income?