First Deal/Purchase - Requesting Scrutiny on Valuation Process

List Price: $2,250,000.00
Units: 74 (60 2-bedrooms, 14 townhouses)
Average Rent: $471.00 per unit
Annual Gross Rent: $418,248.00
Claimed Net Income: $12,000 per month (getting profit/loss statement tomorrow)
Assessed Value: $1,597,260.00
Annual Property Tax: $36,670.58

There are no comparables and appreciation is minimal if not non-existent. Units appear to be in decent shape without too much deferred maintenance. Currently 100% occupancy so may need to raise rents. I’m not seeing how the owner is generating that kind of profit without deferring maintenance. Any thoughts?

Quickie Analysis:
GSI = $418,248.00
EXP = $209,124.00 (including vacancy/credit loss and all overhead, except debt service.
NOI = $209,124.00 Available for debt service

NOI / Asking Price = 9.2% CAP rate (good, for my area)

NOI - debt service = pretax cashflow.

What is the cost of financing? Then you’ll know what the cash flow/ROI actually should be approximately.

The GRM (gross rent multiplier) is the Asking Price / GSI or 5.37 I think this is a deal worth pursuing, unless you’re finding better GRM’s and CAP in similar buildings nearby. I would LOVE to find this project near me. Love it!

BTW, many sellers assume 40% overhead including vacancy factors. Well, they also don’t consider replacements, reserves and realistic management costs (including leasing commissions, bonuses for keeping units rented/maintained at 95% occupancy rate, etc. etc. So, I always assume that I will need to replace stuff, that I need to provide incentive to the management to keep my building full of paying customers, and that keep stockpiling money to pay for the expensive maintenance like roofs and parking lots. How many projects do you see where the pavement is “alligatoring” because the owner has no money available to keep it looking attractive. Or the roof has blue tarps on it for month/years? Or the paint is peeling and the wood trim is literally buckling from exposure. FWIW.