First time investor looking for a check on expenses

[Christa S Rickard]

I've only analyzed a few packages thus far and would like some feedback from those with experience. 

I found a 6-unit, C class property in NC selling for $222K with a 9.7% cap. All units are 2bed/1bath. The actual rent roll shows three of the units rent for $450 and the other three rent for $395, which puts an annual gross of $30,420. 

From what I've read on numerous places, multifamily expenses range from 45-55% of gross income. However, these expenses are only ~ 10%, which should be a sign of missing/understated expenses. They seem to have most of the expense categories included. My problem is I don't know if the values they list are realistic or understated. 

insurance	$2,285
landscaping	$300
management	$1,606
professional	$200
property taxes	$2,190
maintenance	$4,155
utilities	$19
total	$10,755

I need to know if these expenses are reasonable before I decide if/what to offer.

[Charles Soper]

Wow, one could only wish for an expense ratio of 10%, what you seem to have here is about 30% which is still low. They are definitely understating expenses or have found a way to live on property, self-manage, and keep expenses to a min through relationships who do jobs on the property for nothing or an extreme discount. For you're analysis I would suggest you run on a 50% expense ratio which leaves you at $15210 NOI which at they're stated 9.7 cap is a purchase price of $156,800.

So reasonable numbers vs. their actuals equal a value that about 60k apart, sounds like you have some negotiating to do. Couple of questions that would come to mind, what are the prevailing rents in the area of this type of property? Is there room to raise rents without doing any work? Condition of the property? Can you put some CapEx in and then raise rents?

Also, you might reach out to a commercial broker in the area and see if they can give you the prevailing cap rate for the area and size/class of property, with that you might be about to get a feel for what other properties in the area are trading at and give you some more leverage for negotiating.