[Calc Review] Help me analyze this deal

6 Replies

@Chris Hernandez , a few notes about your analysis:

  • You're forgetting Management (10%). Always include this in your underwriting, even if you plan to self-manage.
  • Vacancy looks very low. While this is super local, I usually figure 8%.
  • Might want to consider bumping repairs and CapEx to 15% combined.
  • What's the $475 electric bill? The listing says "separate meters." If you can eliminate or significantly reduce this expense, you'll add $70k+ to your property's value.
  • You'll probably have more than $5k in initial repairs.
  • No way you're getting 4% for 30 years on a commercial loan. Check with your lender, but more likely 5.5% for 20 years or 6% for 25.
  • You'll have to put 25% down and the bank will want you to have 6 months reserves.

What is the local cap rate in your area? Is 7% reasonable?

Are there value-add opportunities? Sub-metering the water would be great. You'd add $36k of value right there..

Can you raise rents at all? I'd love to see a break down of the rents. How much extra are the 3-beds paying? Does that justify getting a garage? A better approach may be to rent the garages and storage spaces separately, depending on how this property is set up.

As it stands, my math shows you ($412)/month. That's negative.

  • You're right, I did not include management fees but I should.
  • I was wondering how much to include for repairs and CapEx. Although roofs were recently replaced but furnaces and some appliances are original. Windows are original but appear to be in good condition. But I will try bumping that figure to 15%
  • $475 electric I believe is for maintenance building and outdoor lighting for the parking
  • Seller financing is 4% amortized over 30 for a 10 yr term, 10% down
  • Local cap rate is 9-10% (a local commercial broker told me that a couple days ago, I thought it was around 8%)
  • Water is not currently sub metered
  • There is room to raise the rents and I definitely would charge separately for storage and garage spaces. Possible annual income gross of $8200. Seller has always rented to elderly which concerns me if I bump rents as most elderly are on fixed incomes. I've had some say just do it all at once when I take it over. They may not like it, but most would pay it instead of moving