Upstate Cap Rates / Help Analyzing Apt Bldg

[Moshe H.]

Hi everyone! I am currently analyzing a 10-unit apartment building for sale in the Capital Region of Upstate New York (Albany County). It's in a somewhat rural area about 15 mi outside Albany. According to the owner's pro forma NOI (which doesn't take into account maintenance, management and vacancy...), it's about $62k and he wants $500k for the property. That would yield a 12.4% cap rate. According to MY analysis (thanks BP calculator!), the real NOI is something like $48k and the cap rate would be around 9.6%. 

I have an old bank appraisal from 2010 and the appraiser then seemed to think that such a building in a secondary market with a somewhat higher level of risk should be valued with a 14% cap rate. However, I know everyone is talking these days about how cap rates have gone down a lot. Also, the appraiser used the "Ellwood Formula" and I have no idea how that is calculated so I don't think I'm comparing apples to apples here.

This is the direct quote from the appraisal:

The subject property is an older, multi-building property. A rate survey for upstate New York commercial properties by Rynne, Murphy and Associates for the First Quarter of 2010 indicates equity yield rates for small multi-family suburban properties in the range of 11.00% to 16.00% with an average of 13.25%. The subject is an older building in a rural hamlet that presents an above average level of risk and uncertainty to a potential investor. An equity yield rate toward the middle to upper end of the range is indicated and an equity yield rate of rate of 14% is deemed reasonable.

Now, the positives are that the current owner seems to have kept a very low vacancy rate. People like living in his buildings. He seems to be on top of all the maintenance. I see a bit of upside potential in the addition of storage units and a small laundry facility. Most importantly for me, he is willing to accept 15% down on owner financing. I (together with my two partners) can afford that! But he doesn't seem to be willing to move down on the price unless I get bank financing.

My question is - does the asking price seem justified, all things being considered? Is a 9.5% simple cap rate acceptable for a fully rented well-performing, but OLD, building in rural Albany County?

Thanks!!