Please Provide Deal Analysis on a 12-Unit. Feedback appreciated
An off-market deal has been brought to my attention. The owner is not selling, but is not opposed to selling. The unit is a 12-unit apartment building in Connecticut. 11 of the 12 units are currently rented. All units are 1 bedroom, one bathroom, with a bonus room (either guest room or office). I am not sure why the additional space is guest or office, my guess is no closet or window. All units rent for $750 a month. There is off street parking for all the apartments, a four bay garage and 8 additional parking spaces. My analysis is below. What I request assistance with is help formulating a offer price. I have an idea of what I think is a reasonable offer price, but I haven't purchased an off market apartment building yet and am a bit unsure where to start the discussion on offer price......
| Unit x 12 | $750 | ||
| Total | $9,000 | ||
| Income | Monthly | Annual | |
| Potential Rent Collected | $9,000 | $108,000 | |
| Vacancy Loss | $900 | $10,800 | |
| Gross Rent | $8,100 | $97,200 | |
| Operating Expenses | Monthly | Annual | (% of Income) |
| Management Fees | $450 | $5,400 | 6% |
| Repairs and Maintenance | $900 | $10,800 | 11% |
| Lawn Care | $0 | $0 | 0% |
| Gas | $0 | $0 | 0% |
| Electric | $50 | $600 | 1% |
| Water | $150 | $1,800 | 2% |
| Sewer | $66 | $792 | 1% |
| Snow Removal* | $40 | $480 | 0% |
| Roof Fund | $0 | $0 | 0% |
| Taxes | $600 | $7,200 | 7% |
| Insurance | $666 | $7,992 | 8% |
| Operating Expenses | $2,922 | $35,064 | 36% |
| Financing | Monthly | Annual | |
| Principle + Interest | $2,725 | $32,705 | 34% |
| Performance | Monthly | Annual | |
| Net Operating Income | $5,178 | $62,136 | |
| - Financing | $2,725 | $32,705 | |
| - Improvements | $167 | $2,000 | |
| = Cash Flow | $2,286 | $27,431 | |
| Custom | |||
| PITI | $3,991 | ||
| Cap Rate | 10.4% | ||
| GRM | 6.2 | ||
| ROI | 22.9% | ||
| Ann Inc - 10% / Purch Price | 14.6% |
I plugged in 600K for an offer price because that warranted a cap rate of 10%+. That is not my answer necessarily, but a good stepping off point, I thought. With the ROI high enough I am open to offering a bit more but obviously want to get in as low as possible. Additionally, I used a commercial loan as the basis for funding with 20% down, but am hoping to work seller financing to entice them to a lower price with opportunity for interest and a monthly income stream. Not the only option, but one I am going to work.
Other notes:
The units are in extremely good shape. This is essentially a turn key deal, not a value add
The unit rents are undervalued (roughly 10%). Not a consideration in offer price, but a nice benefit. They should rent for between $800-$825.
Off street parking is rare in this area. The fact that they all have a space makes them appetizing which helps keeps the vacancy rates low. I will still plan for 10% of course, but the parking will help.
Please help me find a good offer price that won't end the conversation with the seller, but is a good enough deal to make it happen.
Thanks all in advance!