Eastern NC 8 Duplexes
Hey everyone. I am a full-time wholesaler in Eastern NC. I'm looking at a deal that is pretty unique for our team and trying to gauge where an investor would want to be for this type of transaction before we take it on. It's 8 duplexes that have a 10 year lease with a nearby university, built in 2018/19. Income for year 1, starting in March, is $364,800. After taxes, insurance, HOA, NOI is $324,259.19. The deal was originally offered to me at 5,885,000 which would be a 5.51% cap rate. The universities agreement is to increase rents by 2.5 each year for the next 10 years
Again, this is a pretty unique deal for us. Most the deals we move are at a much higher cap rate, but are olders builds, more beat up. Do any investors have experience with this type of deal? And for something this new, what cap rate do y'all typically look for?
Does your NOI take into account any repairs/maintenance? To me it is structured more like a commercial deal with a gross 10 yr lease with added rent bumps. The 5.51% cap rate is going to make it hard for any financing on the deal so you would be looking at a cash buyer most likely.
Commercial investors are able to get NNN properties at similar (and trending higher) cap rates. I think some were purchasing multi-family at low cap rates but they have the ability to increase rents quicker than 2.5% annually.
@Chris T. The owner isn't paying for repairs/maintenance. That's on the university leasing it. It's used as student housing, so I'm sure it has a decent amount of wear and tear. Your only expenses are the taxes, insurance, HOA, so that NOI is correct.
My goal is to get it at a much lower price. Try to sell it to an investor at maybe 4.5 million with a 7.21% cap rate. Your cap rate is going to increase over the 10 year span, but so will your expenses. Probably will be up to a 9-10% cap rate by the end of that 10 years, totally possible that the university renews the leases and/or the investor will sell before the 10 years is up.
