The property I am looking at is a 5 unit, 3,500 sq. ft. property. 4 units are rented and 1 has not been rented for 2 months. No repairs are needed on the property. The numbers below are based on current values provided by the owner and some of my assumptions. Please let me know if I am valuing this property correctly.
Income - $34,020 (based on the 4 units rented)
Expenses - $10,745 (Includes owner provided expenses of: RE taxes, insurance, water, common electric, 3% of income maintenance reserve, 3% of income replacement reserve & assumed $700 in advertising, landscaping, & snow removal)
Net Operating Income - $23,275
Mortgage - $20,871 (based on purchase price below)
Pre-tax Cash Flow - 2,404
Asking Price - $350,000
Purchase Price - $250,000
Some of my thoughts about the property are 1) the rents seem to be below MV. I believe I can get $50 more a unit per month; & 2) I think I can rent the 5th unit relatively quick (within 2 months) which would increase income to over $8,000.
My problem is that I’m not sure if I should base my purchase price on current values (as I did above) or if I should build my thoughts from above into the equation. Please let me know what you think of this property and my rational for the purchase price.
Thanks.