Analysis Paralysis or Analysis Reality?!
Thanks for reading, and I would appreciate your opinion on the following:
I have been reading and trying to make the best out of my understanding of multi-family units, but every time I come accross something I like and I analyze following the steps I have learned here, the analysis seems to completely different to what others seem to be finding and making deals on... Is this the real world where there are only a few deals available for some few lucky ones with connections or am I missing something?
Please look at this example:
Beautiful Mansion in PA, bedroom community for NJ and NY
ASKING 750000
Rents: TOTAL 88,800/yr
1,200, 600, 1,100, 900 for apartments
a vacant apartment for 1,600 and a vacant commercial space on first floor for 2000, both of which were occupied by the previous owner for years, so I don't really know where they got these last two numbers. because of this, I estimated to be more like 1,200 and 1,500, which would TOTAL 78000/yr more realistically I thought.
Expenses: TOTAL REPORTED BY OWNER: 30218
tax 16,450
insurance 4,818
water/sewer 4,470
gas 273
lawn/snow 3,897
trash 1,020
I ADDED 26,640
for 10% VACANCY, 10% MANAGEMENT, 10% CAPEX
TOTAL OPERATIVE EXPENSES: 56,858
NOI: 21,142 (31,942 if I use his 88,800 NET INCOME)
CAP RATE: 2.82%
MORTGAGE SERVICE: 51,588 with 20% down loan 600,000 at 6% for 20 years
Meaning I would have to pay out of pocket 20-30K per year just to cover the loan.
For the Mortgage service to match the NOI and be cash flow neutral the price would have to be 312,500 (or 468,750 using his proforma income).
I can provide more examples like this, but I think the point is made... I find this asking price to be so out of proportion with the calculations I have done, that it is not even funny. That's why I am questioning if this is the real world and there are just 1% of properties out there that are good to even start thinking to make deals on? Are these properties offered by brokers to a select few with tons of connections and years of experience? But then, who buys these other properties at these prices? Someone must buy them since all I find are these outrageous prices... or will they remain unsold for months and months until the sellers realize they have to drop the price down significantly? Or am I making mistakes in my calculations?
Thanks for your opinions!