Market value? Offer price? Numbers not adding up.

[Taylor Witt]

BP World -

I'm looking at a 16 unit apartment building and I need some advice on what the you see as market value and what would be a fair offer price.

The place is listed for $479,000, and the area Cap Rate is anywhere from 8-10%. I did my analysis on a purchase price of $400,000 and the place will cash flow pretty nicely at $1,500/month or so and 20% Cash on Cash. But after looking at the sellers numbers on the Schedule E taxes they showed a NOI of $25,000 for 2015 and $23,000 for 2014. Which would mean this place should be valued at $250,000 - $312,500 if I follow the equation: Property Value = NOI/Cap Rate.

I don't want to insult the seller with such a low offer, but seeing this makes me think I should offer less than $400,000. What do you see this property valued at? I'm torn on what I should offer, because even at $400,000 the place will cash flow nicely, but the sellers numbers aren't justifying the list price.

Can you help me figure out what I may be looking at incorrectly and what I could do to educated the listing agent/seller?

[Russell Brazil]

Dig into the tax returns deeper. Is he taking deductions for things that may be allowed but really aren't operating expenses of the property. Are there large one time write offs for things that are not going to reoccur like a roof. I'm sure depreciation is in there too which isn't a factor in the cap rate.