@Daniel Taylor, the numbers on the building look pretty good. Three things I noticed (I'm also not 100% familiar with your market so these might not be completely accurate):
Closing costs seem low - $8,000 in closing costs seems exceptionally low for nearly a $1M transfer of real estate. Admittedly, I come from an area with very high transfer tax, but I could imagine that attorney fees, transfer tax, lender fees, and other miscellaneous items might come up during closing. Contact a local commercial lender to get at least a ballpark figure for closing costs in your area
No water/sewer expense - Unless this is already submetered and the tenant covers the cost (in which case, congratulations!), I'd ask for water/sewer bills for the last year to get an idea what this costs
Vacancy factor is low - Even if the actual occupancy rate is 100% for the past year, people do move and when they move, it costs you money. Even if the vacancy rate for the building is 5% in practice, the turnover costs associated with vacant units should be budgeted in. Anywhere from 8%-10% is a more realistic number because if you have a management company in place, you can expect to pay a fee whenever they lease a unit. Additionally, this factors in the "turnover costs" of the unit. Repainting, cleaning, etc. This also budgets in money for the time when there's an eviction and it takes months to get a tenant out of a unit. Not something we ever hope for, but something that's important to take into account.
All in all, these do look like really good numbers. Just wanted to point out a couple of extra things I noticed in the analysis. Best of luck!
Daniel Taylor So here's maybe the most salient issue:
Your projected monthly income is (ballpark) $14K. That's an average of $1,166 per unit. The last time a unit was rented it was for $700 and the "upcoming 9/1" rent-ask is $750. So let's say the average is $725. $725 per-unit with 14 units is: $10,150. So (and it's a HUGE assumption) that the listed units are representative of the property, you need to increase gross rents by 38% to get to your projections:
$10,150
$3,857 (38% of current rents)
-----------
$14,007
Now maybe there two units are small but larger units won't have to rent for a lot more to balance it out.
If you use my (admittedly random best-guess) for rent levels at the 50% rule you get:
$10,150 gross rents
50% rule
-----------
$5,075 NOI
$4,910 your debt service number
-----------
$165 monthly cash-flow, $1,980 per year
$1,980/$186K down = 1% cash-on-cash return
🤷🏻♂️
I've seen these buildings on the MLS for a short while now. Love Peachtree City, but only 12 units for that price when the buildings were built in the 1960's. I just looked at 17 units for 1.1 million that are nearly new. The age and the cap x expenses scared me on this one. The other issue that I didn't like were all the window unit A/C on all the buildings. It appears that none of the units have been updated in a number of years. There's another potential expense.
I guess I should have mentioned the MLS price is almost a million. Now, if you can pick those buildings up in that area for 500,000, that's a steal! Good luck to you.
Daniel Taylor So here's maybe the most salient issue:
Your projected monthly income is (ballpark) $14K. That's an average of $1,166 per unit. The last time a unit was rented it was for $700 and the "upcoming 9/1" rent-ask is $750. So let's say the average is $725. $725 per-unit with 14 units is: $10,150. So (and it's a HUGE assumption) that the listed units are representative of the property, you need to increase gross rents by 38% to get to your projections:
$10,150
$3,857 (38% of current rents)
-----------
$14,007
Now maybe there two units are small but larger units won't have to rent for a lot more to balance it out.
If you use my (admittedly random best-guess) for rent levels at the 50% rule you get:
$10,150 gross rents
50% rule
-----------
$5,075 NOI
$4,910 your debt service number
-----------
$165 monthly cash-flow, $1,980 per year
The same number for each unit ($1163) is a dead giveaway that the numbers are either pro-forma or just swags. Seldom is $1163 used as a lease amount and less seldom are all units leased at the same amount, since there will be variability over time and most people don't move in on the same day, month or year.
I applaud the effort.
For next time, as you know it's critical to get correct (accurate) lease information. Less important initially, but also good to get insurance loss runs on a building this old (at 50 years) along with identifying functional obsolescence items (e.g. no central air). $200 (even $500) is a giveaway that you didn't get a quote and do your homework.
As you probably know, the price of $930,000 is an awful number regardless of the property, simply because the national GSE MF Financing cutoff minimum is $1M. Generally you will find sailing is easier with most money partners if the sale amount is over $1.2M or under $500K. Most HNW partners will want to know your deal falls within the Fannie Mae or small loan standards.
BTW, many investor/partners (unless they know you personally) will hit a couple yellow flags in the first 10 seconds or so (like the above) and call it quits.