Need help to analyze 8-plex in Dallas, TX

[Nick B.]

Hello BP!

I came across an 8-plex with the following characteristics:

• Built in 1982, renovated in 2010
• Located close to Dallas Love Fields airport, across the Bachman lake
• 8 units, 1bdr, 640 sfq
• 100% occupied with 6 tenants on month-to-month lease
• $495 monthly rents
• Gross rent: $45240 (2013 actual)
• Actual expenses: $18770
• Property management is done by the owner
• Tenants pay for electricity; owner pays for water/sewer/trash/etc.
• Building is said to be in the good shape
• NOI for 2013: $26470

Current owner is in the process of raising rents to $525/mo.

If I use their 2013 numbers and project them to 2015 with the addition of property management (10% of gross), I arrive to NOI of $22K which is close to 50% rule.

How much should I offer for this property? The asking price is 330K and is based on 8% cap rate. 

Of course all numbers are subject to verification and whatever offer I may make will be contingent upon due diligence.

Thanks
Nick

[Account Closed]

Originally posted by @Nick B.:

Originally posted by @Account Closed:

You need cap rate comps from comparable sales to get the market value.

I see 8-9% cap rates in for-sale listings for class C properties all the time but where do I get the actual caps? Also, 8% seems to be low considering that the building is 100% occupied which may not always be the case.

There is no cap rate comp until a property's NOI has been analyzed and a purchase is completed. It will probably be difficult to get accurate cap rate comps for that size of building. Better to just find what GRM's properties are selling for. Then you just need rents for buildings sold. The cap rate number can be 6% and still be a deal if other properties have sold at 4%. And a 10% cap can suck if properties are selling at 12%. You have to have the cap rate comps, accurate ones to utilize this method.