I am currently evaluating a transaction to purchase 14 brick duplexes in a package deal for $1.6 MM. Eight of the 28 total units are 2 BR/1 1/2 BA and the remainder are 3 BR/1 1/2 BA, with rents ranging from $650 - $800 per month (gross rental income at 100% occupancy is $19k per month). The properties were developed by the owner approximately 12 years ago and have been well maintained. At an assessed value of $1.85 MM, the properties are paying about $38.5k in annual property taxes. Please advise as to whether you think this is a deal worthy of evaluating further. If so, any guidance or insight you can provide into how I should be approaching the due diligence and evaluation of the deal would be greatly appreciated. What questions and information should I ask for? What assumptions should I use in underwriting the economics? If the seller is open to creative financing, what are some possibilities I might consider proposing? If you have questions or need more info to accurately assess the situation and share your perspective, please feel free to ask. Many thanks!
Based on your rent and purchase numbers and my estimate of expenses I get about a 7.2% cap. You need to do your own estimate. Based on that I would want to borrow money at 4.2%. If you put 20% down you would make about 29% on your money in the first year including appreciation.
I don't believe that assessed value means anything. You have to determine an average cap rate for income property in your area.
Be careful on this one. The cap rate approach is great for your own analysis but it worthless on any property that is 4 units or less. Residential units are sold on a comparable sales basis. I would get all the comps for similar duplexes and determine the value from their since you might purchase all of these properties and then be in the same shoes as the seller five years from now.
On the other hand, if this is a commercial deal the cap rate is fine. Again, you would have to determine what similar cap rates are in the area and run your numbers based on sold multi-unit properties.
As a package deal, it warrants a discount for market value. However, if you can get owner financing, that may allow you to pay retail or just below retails with favorable terms-10% down, 20% owner carry, 70% commercial lender financing.
I agree, tax value is worthless. I've purchased deals far below tax value and then had the city assesor lower my value by protesting the valuation.
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