I need help analyzing an offer on a quadraplex in small town 30 miles northwest of downtown Fort Worth and 38 miles from DFW airport. It’s an off-market property that a local custom home builder built. He is asking $393,000 for a property that was built in 2013. It’s 100% occupied. The property needs no repairs or upgrades.
I am concerned that there’s not much room to increase rents and not room for appreciation.
What would be a good counter offer?
Asking Price $393,000
Monthly Rent $3,600
COC ROI 11.2%
CAP Rate 7.9%
Shelly: "Good" is quite relative in this situation. Can you pull comparable sales in the area to see the cap rate at which other buildings sell? If the cap rate is 10% on most other sales, you'll have a good argument for the seller to reduce their price.
Best of luck!
@Shelly Cavin It looks like they’re saying operating costs are 25% of gross projected rents. That’s, well, kinda low to me. Maybe a good place to start is what you think your operating costs would be. If a homebuilder either built it or rehabbed it very recently you can end up with some skewing of numbers. The oven is new so it’s a cap-ex items (not an operating cost) and there probably has been no need to repair it. They do a full repaint while you’ll be patching paint at turnover. They can drop Ed at the property with a mower instead of paying a landscaping company. You could pick 10 little things that start to add up and change what the NOI would be for you.
So what do you think your NOI would be?
I think that the expenses will be 14,642 annually, if there is turnover in every unit every 12 months. I estimate the expenses more at 34%. But, could be as low as 27% (11,642) with not much turnover.
I found one duplex comp about 12 miles away where the cap was 8.5
Thank you for helping me to focus on the fact that the seller is are around the corner. He does a lot of the maintenance himself.
You have to run your numbers and see if putting x down and then financing gets you whatever your desired cash flow is. If not, the offer needs to be lower.
If you are planning on holding it for 5 years or less just throw out a price and see what he does. As a long term hold I would probably make a first and final at 350K. Based on rent it is not worth any more than that to me but your market will drive the price.
The rent to value definatly does not work at 393K.
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