PLEASE HELP!! Pricing Out 8-Unit Building

Please help,

I am looking into my first muli-unit building and I want to make sure this sounds like a good deal.

The owner bought the property 15 months ago for 250K. He has done some work but not and extensive amount (~10K). He needs out to buy into his business. He is asking 295K which is 6k above tax value.

Here are the numbers:
$3200 month - rent
$920 month - expenses (excl mortgage)

He needs 200K and is willing to finance the rest on a 10yr baloon at %7.

Please help me understand how to analyze this deal and what a fair offer is based on your opinion.

Thank you in advance for your time and consideration.
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Comments(2)

  • commercialking23rd June, 2004

    Well, I know that this is a bit redundant by now but the old german guy who I worked for many years ago used to have a saying: "any building, any where, any time is worth ten times one years true NOI." This is also the same as saying a .10 cap.

    So if you think that the NOI is $27,00 (roughly the number you gave) then the building is worth $270,000. You can tinker with the $27,000 if you want to make sure you''ve adaquately accounted for defered maintenance, for property taxes, for management expenses.

    The rest of the old german's quote runs like this,

    9 times the NOI is a good deal.
    8 times is a very good deal.

    if you find a building for 7 times the NOI you come get me-- I will buy any building any where any time for 7 times the net.

  • nbkqbl623rd June, 2004

    CommercialKing....

    That is the number I came up with also, using the 10% cap rate scenario. I left a voicemail for the seller and explained my rationale. Hopefully I will have some good news to post soon!!

    Thank you again for your knowledge and assistance.

    God Bless Our Troops!!
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