Should I go as is on asking or offer 20% less

5 Replies

Okay, I am looking at a deal where the seller is asking $455000 for a 13 unit slightly distressed apartment building. Currently bring in $6000 a month. The area cap rate ranges from 7-9%. In my numbers I am using a conservative 40% expenses mainly because I have no other information on the property. I come up with an 11% cap rate. Is this a good deal, I feel it is. Also should I still offer 20% less than the asking price? 

PS, it is owned free and clear but I don't think the guy will go for a lease option or hold first mortgage.

I think we need more information. You said it is slightly distressed. How much does it need in repairs? 40% in expenses might be correct or it could be way off. Can you find out more information about the expenses from the seller? What is the location? What is the vacancy rate in that area? Are you budgeting for vacancy and maintenance? Will you be using a property manager or self managing? What is the market rate for rents? $6000/month for 13 units averages to $461 per unit per month. Is there room for an increase? These are all important factors to consider to be able to determine whether it's a good deal or not and how much to offer.

40% includes tax, insurance, repairs, management. Supposedly there is never a shortage of tenants as this is a college town and also walking distance to a Chick-fil-A and Lowe's so it's a B class neighborhood. Units have washer dryers but no dishwasher, and I would put in flooring slowly as tenant moved out also I would put new siding, roof and black top over concrete parking lot.

How did you come up with the 20% discount number?  Some math behind it?  For example, if you get it under contract and after inspections, it shows that it needs a new roof, etc. so ask for a credit.

Or the seller is asking $35k per unit but comps in the area are trading for 20% below that?

Need a good reason for that 20% number.