Advice on Apartment Purchase

[David Beard]

Well, I'm looking at a 24-unit deal, and I'd like to get some feedback from BP'ers, as I've never bitten off anything even close to this and my anxiety is up there a bit.
* Pretty decent area, C++ to B- property, fully rented
* 24 units in two buildings, 18000 SF, all nice-sized 2BR; brick exterior; 4 units on each of three levels per building.
* Owned by busy small bank president, has been managed [poorly] by 82 year old father from 60 miles away. Dad is declining and they badly need to get him retired.
* Most tenants are paying $425/month and rents haven't been increased in years. Quite a few tenants have been there a good while, not surprising. There are two section 8 tenants, one paying $600 and another paying $500 (not sure why different, but that should give a better idea of market rent)
* Price is $27K/unit; will offer $25K and might settle at $26K
* Buildings are in nice shape; built in '72, seller has upgraded alot of mechanicals in past few years.
* If I can move average rents to $500-550 range, in my market I believe this will add at least $100K to value. I consider this a 9-10% cap rate property if run correctly. I'd be buying it at 11% cap on the current low rent. Would have potential profitable exit, or refi possibility, after 24 months.
* Seller is open to seller-financing with 20% down as an installment sale will spread out his tax pain. Broker: "He wants buyer to have skin in game. He does not want the buildings back". Two offers have come in, both wanting to put 10% down with seller financing; seller declined. He seems pretty focused on not getting the properties back.
* Seller actually offering 84 total units; 5 separate properties; asking $2.6mm. The property I've focused on appears to have the most potential. Pricing by property doesn't appear rational to me. One issue is that seller owes only $425K on the 84 units, but it's all attached to the property I want. So I'm not sure he'd go for seller financing on just the one property, as he'll need funds to pay off the mortgage. I don't think a "subject to" would work with someone like this. So I'm going to pursue bank financing at probably a better rate anyway.
* In any event, I can only afford the one property that looks the most promising.
* I'm going to comb through the units in the next couple of days, review utility bills, expenses, bank accounts, and tenant files. While some of the tenants have been there a good while, many have been poorly screened, and they have evicted a couple of tenants this year, with one more this week.
* Should cash flow quite well right away with 11% cap rate, but I'm really focused on increasing rental income and value, so that'll be a delicate walk with the tenants.
* Will put major dent in my investable funds at 20% down, though I have credit lines for contingencies. Can also borrow against 401-K.
* Sorry for the lengthy data dump. Bit anxious, as I said, want to anticipate possible surprises a best I can.

Comments are appreciated.