10 plex, 1b/1br, separetly metered for gas and electic, brick, new roof. This is what I got from the realtor:
Income:
Apt 1: $375
Apt 2: $375
Apt 3: $375
Apt 4: $385
Apt 5: $375
Apt 6: $375
Apt 7: $425
Apt 8: $425
Apt 9: $425
Apt 10:$350
Laundry:$125 monthly
Total Monthly Income: $4,010
Expenses:
Taxes: $4000 annually
Insurance: $2000 annually
House electric meter: $38 month
Water: $225 month
Lawn: $50 month
I need to make an offer next week. What do you experienced guys think? Thanks.
Why do you “need” to make an offer next week? What is the asking price?
I would ask the Realtor for a rent roll. Are all those apartments rented? I would also as for a complete list of expenses. There is nothing listed for maintenance and repairs, snow removal, management fees, vacancy rate, trash removal, reserves, turnover cost etc., etc.
If you can’t get a full list of expenses I would figure a 50% expense ratio. Then apply the cap rate you feel is appropriate to get to your offer.
Assuming all the due diligence is acceptable (no deferred maintenance, normal occupancy rate, local issues, etc), then here is how I would evaluate this deal:
Gross rents: $4,010
Operating expenses: $2,005
NOI: $2,005
Less desired cash flow of $100/unit/month - $1,000
Max debt payment: $1,005
Max purchase price (30 yr, 7%, $1,005 payment): $151,059 (less any rehab needed)
That’s my opinion!
Good Luck,
Mike
10 Units cash flowing at $107 per unit per month
Gross Income: $700/mth = $48,120 annual
Expenses (50% rule of thumb) -24,060
NOI: $24,060
120k@7%/20yrs: $11,164
Yearly Cash Flow $12,896
Your offer is 120K minus repairs
I am wondering why everyone figures the loans at a 30 year term which seems to be unrealistic as every bank I talk to is 15 years. The calculation above is based on 20 but even that seems too high.
Can someone please explain to me the 30yr estimates for commercial property? Won’t that just come back around and bite you in the a** and drop the cash flow to relatively nothing requiring you to do the property management and maintenance???