Posted by Ian on December 16, 2004 at 09:25:49:
Kathleen,
First and foremost, you should absolutely go see the property. If you wind up not buying the place all you’ve lost is 30 minutes. However, with every property you go see you learn something, so the more the better.
As for whether this is a good deal are not, assuming your expense numbers are all inclusive and accurate and your gross income is accurate, at $399K the seller is trying to sell this property at a 6.9% cap rate. Now, it depends on what market your in, but this is a relatively low cap rate, especially for a small building. If it were me, I woudln’t buy it for anything less than an 8% or 10% cap rate, which would be $274K and $343K respectively. So, your initial offer price range of $275K-$300K is right on in my opinion.
As for comps, the comps from Domania are okay for single families, but aren’t that great for commercial real estate, which a 5-unit building is considered. Make sure you go out and visit all the comps you’re using before you rely on their applicability to determine your offer price.
Another option would be to do a discounted cash flow and net present value analysis in order to determine the price you want to offer for the building.
Without additional information that is the most in-depth response I’ll venture to provide. I hope this helped.
–Ian (Chicago)