6-plex seller gives me expense spreadsheet, expenses seem unusually high?

Question

attached is what I was given. they seem high to me, wouldnt the owner "want" to show me low expenses? these dont even include taxes which are $4,800/year.

this is a 6-plex, seller is asking $210,000. it is located in a C class area.

thoughts on expenses?

Account Closed · Answer

they provided me their rent rolls. Rents per month total right around 3,300/month.

so 100% occupancy would be $39,600. therefore it looks like they must be getting 70% occupancy rate? they didnt state their occupancy rate in anything.

I think the rents are pretty much at the market rate but I do think I could get the occupancy up to 10% or less, also I think their expenses are just high.

heres a pic, 6 units in one single brick building, no garages, one spot per unit out front. little yard.

Bill S. · Answer

Account Closed - There are lots of hours in the maintenance (~$5,000) but not much in materials ($1,400). My experience is that those are about equal. I see a number of items missing. There are no significant CapEx items. What about roof and heating system? How old is the roof? What about the boiler?

Kyle H. · Answer

Something isn't adding up in the maintenance section.  If there is a property manager, then there should be a section for management fees and management supplies only.  If there is no property manager, then he should be charging for his time/supplies only.  The fact that he has management fees, management supplies, maintenance hours, AND property services tells me that he may be "double-dipping" in the property management area.  If you can self-service this unit OR hirer a property manager, I think you would be able to eliminate a significant portion of all these management charges he has.

Sean Ploskina · Answer

There numbers are very strange.  1500ish for water and gas in one section then 2600 in the other section.  Very high hours charged for maintenance.

I would want receipts for all of these numbers.  Either way my offer would be pretty low based on their numbers

Arlan Potter · Answer

the rent is way too low.

Account Closed · Answer

UPDATE: My agent suggests I make an offer of $76,600!?

current owner paid $225,000 back in 2005. there is another 6plex next door, also assessed at $225k.

For the below reasons I was not originally going to make an offer, BUT for a price under $100k I think it looks great. I also think she is crazy thinking we can get it for that cheap but hey why not throw the seller atleast some type of offer instead of nothing right? And its her suggested price so its not like im wasting her time, it shows shes willing to put in low offers/work hard to eventually land a deal?

I told my agent I like her suggestion and to go ahead and write up the offer.

after looking in the neighboring unit and driving the area a few more times, im thinking its closer to a C or D property. Property manager gave me and my agent a tour of this property, 1 unit needs major repair, others are in fair to average condition. . looks like the owner and the property manager mutually dont care much about the property and obviously dont inspect units each year.

what do you guys think?

Account Closed · Answer

@Sean Ploskina my thoughts as well. All units are separately metered tenants pay their own utilities. So landlord only pays for common area utilities, as you see in the picture theirs not much to the common area other then hallways/stairs.

Account Closed · Answer

@Aaron Junck your exactly right, with taxes and financing your cash flow negative. the lawncare i think is inflated, what you see in the pic is all there is, vitually no backyard, in my area it shouldnt be more then $40-$50/month.  Im still waiting on the property management company to get back to me with a time for a tour, im guessing they may be part of the reason these expenses are so high if they control maintenance.

$100/door is also my personal minimum. So with the assumption that I can get expenses down to 50% including taxes, and occupancy up to 90%, I would be cashflowing around $100/door at an offer price of $165,000

Account Closed · Answer

@JT Spangler that is what I was kind of thinking, rents are probably already where they need to be but if I can get occupancy up to 90% and lower expenses down closer to 50% of income then its starting to look a bit better. Still surprises me the expenses are so high on a simple 6plex like this

Ruslan Laranjo · Answer

I'm curious what happens with the offer. For under 100k I believe it's certainly worth doing further due dilligence to see if you can make the numbers work

6-plex seller gives me expense spreadsheet, expenses seem unusually high?

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