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Real Estate Deal Analysis & Advice

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Paulina Purnama
  • Investor
  • Dallas, TX
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8 Plex Deal Analysis

Paulina Purnama
  • Investor
  • Dallas, TX
Posted Oct 24 2014, 20:58

Hi guys, I'm still a newbie but interested in a 8 Unit apartment building. 

Built in 1990's. All apartments have attached garage as well as washer dryers.

4 one bedrooms which rent for $550

4 two bedrooms which rent for $750

All currently rented with year leases. Few long term tenants.

Owner pays heat and water / sewage. Tenants pay electric. 

New roof 2012, new hot water heater in 2013, and boiler overhauled last fall. 

Decent condition in older neighborhood but vacancy rates have been about 4-5% in the last 3 years. Seller has provided last 3 years of tax returns.

Problem is the asking price: $725,000! 

I ran my calculations with a sale price of $650K. What do you guys think? I would have to obtain a commercial loan 4.5% fixed for 5 years with 25 year term. 


Purchase Price $650,000
Down Payment $130,000
Loan Term 25 Years
Interest Rate 4.50%
Principal & Interest Payment $2,890
Closing Costs $5,000
Gross Scheduled Income (GSI) $62,400
Vacancy Rate 8.00%
Number of Units 8


Pro-forma Income Statement & Cash Flow
Gross Scheduled Income (GSI) $62,400
Less Vacancy $4,992
Total Actual Annual Income $57,408
Gross Operating Income (GOI) $57,408

Annual Operating Expenses
Accounting $100
Utilities (gas and water / sewage) $5,000
Landscaping / Snow removal $2,100
Maintenance & Repair $4,000
Property Insurance $2,000
Property Management $0
Real Estate Taxes $6,000

Total Operating Expenses $19,200
Net Operating Income (NOI) $38,208
Annual Debt Service (mortgage payments) $34,684
Before Tax Cash Flows (BTCF) $3,524


Key Operating Ratios
Capitalization Rate 5.88%
Cash on Cash (COC) 2.61%
Gross Rent Mulitplier (GRM) 10.42
Net Income Mulitplier (NIM) 17.01
Debt Coverage Ratio (DCR) 1.10
Expense Ratio (ER) Per Unit 33.44%
Price Per Unit $81,250

Acceptable deal? I like the sound of having 8 units in one building. Less back and forth. Nicely updated but some appliances are old. 

I also did not count any capital improvements into the calculations since the roof and heater were recently updated. 

Is it worth it? My area is really booming and most investment properties available are 2-3 plexes and built in the 1900's. Very old. Lots of new apartments coming up but I think lots of working class folk will be priced out of those. 

I know the cap rate is kind of low but this would be a buy and hold situation. Will also offer some tax advantage since I am a high income earner. 

Any thoughts or help would be appreciated!

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