Posted by ray@lcorn on November 04, 2004 at 12:43:13:
Tye,
You would be taking a risk basing an offer on the projected numbers. I’ve done it, but only with a clause in the offer that defines the price being contingent on the verification of income/expense as represented. Any reduction in NOI would trigger an adjustment of the sales price. Some specify a cap rate, but with no more info than this I would be hesitant to lock myself into that without knowing market data, building condition, rent roll quality, etc.
Earnest money is negotiable, ranging from none to 1% or so of the sales price; in form of cash, note or combination; contingent on buyer’s acceptance of the due diligence information; all up front, or may divided into one piece up front and additional funds when due diligence is accepted.
Expenses:
Utilities $45,210
Insurance $ 8,171
Real Estate Taxes $60,451
Maintenance (5%) $26,429
Management (5%) $26,429
Vacancy (5%) $26,429
$196,119
Net Operating Income $381,681
Sale Price: $3,675,000
Capitalization Rate: 10.4%
Financing:
Existing assumable mortgage with HSBC Bank ? First $2,475,000 at 5.82% 25 year amortization and Second $280,000 at prevailing rates with 25 year amortization.
Cash Down $920,000
Is this a deal based on the numbers? Thanks in advance.
What is the building? Apartments? If so I would guess that the expenses are understated. I use E/I = .45 as a pretty good rule. Of course sellers always seem to use .30 to .35, by leaving out things like capital expenses (and reserves) and their own management labor.
If it is an office building E/I = .40 is a good rule to start with in MHO.