You'll have to complete your due diligence and verify the numbers. A property can look like a real gem but actually be a stinker if the owner is cooking the books or failing to account for certain expenses.
Walk the building grounds and every unit if the numbers make sense after you get more info
I am assuming that when you say "the numbers show great returns" that the numbers are the current owners income and expenses? If so, you need to dive into their numbers and get each income and expense category, determine if that is how you will operate the property as well.
Some questions to ask yourself:
- Will you be able to raise the rents? (based on rents at comparable properties in the area)
- What percentage of the income is paid as expenses? Anything below 45% would be concerning
- What is the cash flow after paying the debt service?
- What is the deferred maintenance situation? If there is a lot of deferred maintenance, that is money out of pocket
- Is the property currently self-managed or managed by a property management company? If self-managed, will you be self-managing or paying a management company?
These are some questions to get your started, but I recommend doing a full underwriting to determine a fair offer price.
I sent you a message have a look!
The #'s are interesting depending on where you live.
Those expense look VERY low (21% of the gross income). It was likely self-managed, but still - something else is going on with the expenses.
@Joel Senko Expenses for sure are low. Were you able to verify why?
Where is the capex reserves, vacancy expenses, property management expense/reserve, etc? It seems like those expenses are what they actually spent (last year, last 2 years average?).