Need advise on this 21 unit pocket listing

[James Friery]

Hi all!

I'm currently looking at a pocket listing in Troy, NY. The current owner is shopping it around for 1.35m (7cap) and the proforma numbers are as followed: ANNUALIZED INCOME

Actual Market

Gross Potential Rent $191,639 

Less: Vacancy ($5,749) 

Effective Gross Income $185,890 

Less: Expenses ($91,497) 

Net Operating Income $94,393 

Debt Service ($65,592) 

Net Cash Flow after Debt Service $28,801 

Principal Reduction $17,403

Total Return $46,204 

ANNUALIZED EXPENSES

Actual Market

Property Management Fee $9,582 

Replacement Reserves $5,250 

Building Insurance $6,712 

Maintenance $12,560 

Taxes - Real Estate $36,296 (37220 w/o exception)

Utility - Electricity $2,453 

Utility - Gas $12,369

Utility - Water/Sewer $6,275 

Total Expenses $91,497 

Expenses Per RSF $8.39 

Expenses Per Unit $4,357

I did some additional digging and found that they offer Wi-Fi for the building (I talked to a rep and said providing service for a building that size should run 285 a month) and the trash was left off which runs about 285/month. Mgmt and vacancy seem pretty low (5% and 3% respectively). And the loan given on the proforma seems unrealistic (commercial loan amortized over 30 @4.5%).

The area is a good rental location in troy (north lansingburg) however it's still in transition. The building is a converted schoolhouse comprised of 17 1bdrm, 1 studio, 3 2bdrm. The units are on the small side but the owner pays utilities and they look nice. One of the very large boilers is pretty old (other pretty new) but the building itself appears in good shape (had a fire 2009 but renovated). 

I have my own thoughts and have run some #'s but I'm just fishing for any advice. I'm trying to locate a good place for my father to park some cash in and this would work for the right price, financing etc. Thanks for any help! If you need any additional info I'll do my best to find some but the proforma I was given is kind of lousy even by proforma standards.

[Ryan Vienneau]

A 7 cap is absurdly low for Lansingburgh, that area is one of the sketchiest in the capital region, half the houses are boarded up, theres a TON of rental inventory on the market because even low income renters are fleeing the drug violence.  

The ONLY reason to buy there or in similarly bad neighborhoods like Arbor Hill in Albany or Crane St in Shenectady, or South Troy for that matter, is because you can easily get 15+ cap rates and 30+% COCR because most of us would rather not have to wear a helmet when collecting rents. I would say a 7 cap MIGHT make sense in Saratoga, but thats about it.

And don't get overexcited by the occupancy rate, I would be willing to bet that occupancy is high because its 100% section 8 tenants.