What could be wrong with his deal?

Question

Hello, i would greatly appreciate any feedback. I am new to analyzing deals, and i have calculated this property ( http://www.loopnet.com/Listing/19964090/1215-and-1... ) as getting a cash on cash ROI of 20% with a downpayment of 25% - $455000. Accounting for mortage ($6619/month), pm at 8%, CAP EX & Vacancy at 5%, Insurance at $500, taxes at $1895 (all per month), this property is cash flowing at $7950/month. On paper it looks like a great deal in this current market. My question is: what could be a reason that it has been on the market for a while and that no one has bought it yet? Could it be a bad inspection? Any list of ideas would be greatly appreciated for a guy learning. Also, if you believe i am calculating wrong on paper, please let me know!

Thanks,

Joel

Thanks,

Joel

Joel Wilson · Answer

Thank you for the reply! I assumed that my insurance calculations were low,  but i did not realize that the others were. What percentage of the monthly income should Cap Ex, Repairs and property tax be? The vacancy rate it that area is surprisingly low, and thats why i put it at 4%. Should i increase that just for safety sake? To figure out the property tax, i just multiplied the sale price by .0125, then divided by 12. Thank you again for taking the time to help!

Brent Coombs · Answer

@Joel Wilson, looks to me like the figures you're quoting are based on a SINGLE Family Residence valued at $1,820,000.00, rather than the commercial 28 apartment block that this is?

eg. I believe you'll find Maintenance, Vacancy Allowance, Taxes and Insurance will ALL need to re-assessed in light of REALISTIC (more expensive) numbers, not the pro forma ones you gave.

Still, I reckon it's worthy of a closer look. Please keep us updated. Cheers...