Help analyzing a multi family deal
I own two duplexes and a single family but am looking at an off market 8 unit and analyzing multi family is a bit new. Any advice would be more than welcome.
This is just an initial analysis. I’ve seen the property, talked to the owner and received his rent roll and expenses. Due diligence will come later if I can get this under contract.
Asking $520k
Indicating $80k in rent and $20k in expenses. Only 25% and the owner pays for all utilities. The property needs some work so expenses seem very low, especially considering utilities.
Based on an asking of $520k and $60k NOI, he’s selling at an 11.6% cap rate.
The expense itemization is missing some key items:
- management
- lawn care and snow removal
- maintenance costs
It only lists taxes insurance and utilities.
I’m considering $10k in management (10% of rents plus 25% turnover annually), $2500 annually in lawn care and snow, $5000 annually in maintenance and repairs. This increases expenses to about 46% and decreases NOI to $42500. Based on an 11.6% cap rate, I’m looking at a value of $366k.
Again, I would then need to get a sense of actual income, actual expenses, inspection of the property, better idea of rent potential, etc.
Is this a fair way to assess a multi family? What else should I consider that I’m not at this point?
Thanks!