12 unit multifamily in Midwest area

[Stephen Jones]

BP,

I am in the process of purchasing a 12 unit multifamily property, I am wondering what investors in my area (Midwest) would pay for this particular 12 unit property? I just want to make sure I am not overpaying during this pandemic. Considering something better may come up here in the near future with everything going on. The details are as follows:

- Location- Bethalto, IL- Population around 15,000- 20 mins outside of STL area. Great school system/community

- 2 buildings- 6 units in each building

- 2 Bed 1 Bath units

-1000 sq ft per unit, appliances included, washer/dryer hookups in each unit

- built in 1998 so fairly knew

-Rent Roll is low and will need to be raised- Currently at 590$ per unit 

- Very low vacancy rate in the 15 years the owner has had them

- New roofs, Air conditioners

-Building structure seems very good.

- Another plus is that I own 16 units just down the street so the location for me is helpful.

His initial asking price was 650k and now he is thinking he needs to be at 700k. I personally think 700k is way too high, especially with his current rents being as low as they are. Anyway, any advice would help. I would GREATLY appreciate it. Thanks, hope everyone is staying safe out there!

[Greg Scott]

The most important metrics for assessing value are missing from your post.

What is the NOI? T3, T6, T12, Guestimate or Pro-forma would all help frame this. Ideally you would also have comparison Cap Rates too and know what expenses per unit are in your area.

Without better NOI data, here is a very rough estimate. Operating Income is approximated at $590*12 units *12 months *90% Occupancy = $76K Operating Expenses guestimated at $4.5K per unit or $54K, making NOI $22K. At a guess at a 7 Cap makes valuation $314K.

On the other hand, if he has kept rents stupidly low and you feel you can easily raise them to $800/mo, the potential upside value might be something like $800*12*12*.9=$103K, which at a 7 cap means you could achieve a value of $700K. However, you would be paying for work you did, not what the seller did.