Lowest Acceptable for this property?
Sale price $1,100,000
NOI: $84,259
Cap 7.7%
Rentable SQft 6,040
Price/SF 182.12
Total 6 small units (avg 1,000 sqft per unit)
Building in Good condition (after visual inspection, not from inspection report)

One unit is leaving at the end of april 30, 2019. The the NOI that seller’s agent provided is going to be lower since this unit brought in about $22,000/year.
The rest of the units’ leases are ending in staggered years with possible two tenants leaving in 2019, and then rest of the leases end in 2020, 2021, 2022.

Some facts:
Adjacent to Chik fil a, and 1 mile away there is costco, adjacent to the street there is large mall, along with best buy, and ross

I really like the property but my agent keeps telling me to pay full price because there are “other offers” (I heard this before). Maybe she’s bluffing or maybe she’s not. Anyways, I would like to send in my offer to my agent. What offer would you buy this property for for a GREAT deal, not like a fair deal? I was thinking anchoring the price at $975,000 because there is a tenant already leaving at the end of the month, plus two tenants leases are up in later in sept 2019 (possible may not renew). Got an interesting case here. What do ya’ll think? Is $975k  is insulting?  Will even MY agent scoff at this notion? Please advise
[{"id": "ekrdweo", "text": "Need much more information. Are the rolling leases below market? Will they require TI\u2019s to lease up?", "replies": [{"id": "ekreu45", "text": "Sorry couldn\u2019t put up some many words here on reddit. Word Restriction. The leases are at FMV. I always assume there would be TI to be shelled out unfortunately", "replies": [], "depth": 2}], "depth": 1}, {"id": "ekreilg", "text": "There are so many missing variables. Area demographics, tenant mix, tenant credit, parking, access, traffic counts. \n\nIf you really want it at the low price, do a quick close in 30 days or less with no financing contingency. That will get their attention.", "replies": [{"id": "ekrfckq", "text": "Oh thanks for your advice! Yea sorry I couldn\u2019t give you more information (like hard data). The tenants are not national tenants. Parking is above adequate but outdate (need to re-paint the lines). Traffic count is actually heavy especially with the people coming in for chik-fila. \n\nSo just based on the information given, what would be a good guestimate? What price can I anchor with?", "replies": [{"id": "ekrhsof", "text": "The issue at hand is what do you need as an investor as a return and what do you think you can do with this property to make that happen. \n\nAt a 7% cap or higher you already have a considerable positive spread over your likely interest rate. If you can push the rents and attract good tenants then just figure out what that will cost you to implement, factor that into your analysis and hurdle rate and come up with a valuation that works for you. \n\nDifferent deals are worth different amounts to different investors. This is especially true on a value add play like this. It is very simple to slap a 5% cap on Walgreens STNL deals and most people would agree, but what you are describing is nothing like that.", "replies": [{"id": "ekricwq", "text": "&gt;At a 7% cap or higher you already have a considerable positive spread over your likely interest rate. \n\nCan you show us all the math on this?", "replies": [{"id": "ekriugw", "text": "Well if your interest rate is 5% and the cap rate is 7 then you have a 200 bps positive spread. Meaning your cost of capital is 200 bps lower than your implied rate of return which is very good. \n\nIf you bought an apartment in SF at a 4.5% cap and your debt was at 5%, you would have 50 bps negative spread.", "replies": [{"id": "ekrk4ws", "text": "&gt; If you bought an apartment in SF at a 4.5% cap and your debt was at 5%, you would have 50 bps negative spread.\n\n\nSo?  If the cap rate was 3 then it would mean the NOI is in more demand that the 7% market.  I'd wanna know why.  Cap rates are market derived.  They just don't \"happen\".", "replies": [{"id": "ekrmfrd", "text": "I\u2019m not sure what your issue is here. Yes cap rates are market derived. Cap rates are the implied return on a RE asset.  Yes a 3 cap is more in demand NOI than a 7 cap.  \n\nIf your cost of capital is higher than your cap rate, then your debt service is eating your return. If your interest rate is below the cap rate, you are improving your return. \n\nWhen you look at low cap rate deals, you\u2019ll see that the available leverage is going to be much lower than normal because the DSCR and debt yield will limit your ability to lever up at underwriting. On a 7 cap deal it will be very easy to get 65%+ LTV with a positive spread loan which juices the cash on cash return because less cash is required.", "replies": [{"id": "ekro5wm", "text": "&gt; I\u2019m not sure what your issue is here. Yes cap rates are market derived. Cap rates are the implied return on a RE asset.  Yes a 3 cap is more in demand NOI than a 7 cap. \n\nThe issue is your complete misunderstanding of what a cap rate is.  It is not a return.  The lower the cap rate the MORE is being paid for the NOI.  Investors do not pay more for a lower return.  Please address this.  P.S.  Cap rate calculations exclude any financing terms.  Please also address this.  Don't run away, I can explain ALL this to you.", "replies": [{"id": "ekroqhf", "text": "NOI/Sale price = cap rate. It is an IMPLIED return. \n\nNow go message the OP and see if you can\u2019t get some business.", "replies": [{"id": "ekrppb0", "text": "&gt;  It is an IMPLIED return.\n\nPlease define if you can.", "replies": [{"id": "ekrrl4b", "text": "Can' believe this statement is in a commercial real estate thread.", "replies": [], "depth": 11}, {"id": "ekrs0s2", "text": "https://www.investopedia.com/terms/c/capitalizationrate.asp", "replies": [{"id": "ekrsicl", "text": "Investopedia!!!!!  Seriously?  Answer my questions and you'll see how ignorant the Investopedia definition is.  Come on.  Use YOUR critical thinking.", "replies": [{"id": "eqqwlnj", "text": "After learning more about advanced CRE modeling I see you were actually on point in this thread - though your social skills need some work if you want to actually reach people.\n\nHe should be solving for IRR, COC, or YOC. However there is a direct relationship between cap rates and how measures of return move since they are all using the same variables.", "replies": [{"id": "eqs1ena", "text": "&gt;After learning more about advanced CRE modeling I see you were actually on point in this thread -\n\nDang I'm giving out education worth $40,000 in Guru bucks and saving all that will learn probably hundreds of thousands of dollars in future scamless deals.  Maybe I don't have the smooth delivery of a Clayton Morris. yeah ask all his scammed \"investors\" how that worked out for them.  [https://www.ripoffreport.com/reports/clayton-morris-and-his-company-morris-invest-are-extremely-negligent/-/clayton-morris-and-his-company-morris-invest-are-extremely-negligent-oceanpointe-property-1442351](https://www.ripoffreport.com/reports/clayton-morris-and-his-company-morris-invest-are-extremely-negligent/-/clayton-morris-and-his-company-morris-invest-are-extremely-negligent-oceanpointe-property-1442351)\n\n&amp;#x200B;\n\nThe OP asked about value and was using direct capitalization back asswards.  I tried to educate him.  Others jumped in to perpetuate the ignorance.  I sit with ownership of billion dollar properties and have never had the butt hurt that I get from novices on the internet.  Geez.\n\n&amp;#x200B;\n\n**\"There is a direct relationship between cap rates and how measures of retune move since they are all using the same variables.\"**\n\n&amp;#x200B;\n\nWant to continue the discussion on this?", "replies": [], "depth": 14}], "depth": 13}], "depth": 12}], "depth": 11}], "depth": 10}, {"id": "ekrpzet", "text": "1.  Also you have ignored my questions of why investors would pay MORE for less return.\n2.  Why would a seller give up a HIGHER return for less money?\n3.  Since cap rates don't address capex and more likely a higher cap rate market has less rents per sf then it may take 50,000sf to get $50,000 NOI in in a lower cap rate market that say has double rents so the NOI may only be based on 30,000 sf so the capes is probably way less.  Please address if you can.", "replies": [{"id": "ekrry6w", "text": "They pay more for a lower return because the implied risk of a Walgreens STNL deal is much lower than a strip center with mom and pop tenants. \n\nSellers are not concerned with buyers returns. Sellers have their own hurdle rates they are trying to achieve. If they choose to \u201cgive up a HIGHER return for less money\u201d that decision is completely unrelated to the buyers valuation determination. The seller can always say no. \n\nYour example here doesn\u2019t make sense as assets with wildly varying cap rates cannot be compared on the basis of square footage. All of these issues are unique to the deal. I own a business park that I bought into at $60/ft for 53kft and a retail deal that I paid $400/ft for 22kft. You can\u2019t compare NOI on an absolute basis here. Tenant improvements on the park run $2-5/ ft while the retail TIs are like $20-30/ft. Rents are $.85/ft vs $3.50/ft per month. Valid comparisons here don\u2019t really exist.", "replies": [{"id": "ekrsnhy", "text": "&gt; You can\u2019t compare NOI on an absolute basis here.\n\nThat is EXACTLY what cap rates are for.   Geez, any basic investor should know this.", "replies": [{"id": "ekrsxzf", "text": "Check your PM", "replies": [{"id": "ekru43t", "text": "I think you\u2019re being trolled, sir.", "replies": [{"id": "ekrxjhm", "text": "It doesn't bother me.  Perhaps some other reader will be educated.", "replies": [], "depth": 15}, {"id": "ekszpmt", "text": "Yes, it seems so.", "replies": [{"id": "ekt9lxq", "text": "&gt;Yes, it seems so.\n\nI think he is calling the person that can't answer basic questions the troll.", "replies": [], "depth": 16}, {"id": "ekta0v5", "text": "&gt;Yes, it seems so.\n\n  If you think a 5% cap rate is a low return then why is the seller holding out for the higher price.  LOL  Seriously answer that question.", "replies": [{"id": "ektfzng", "text": "You are the AOC of CRE", "replies": [{"id": "ektgfew", "text": "&gt; You are the AOC of CRE\n\nEducated and on point. then probably.  Gonna answer my question?  AOC would keep grilling you!", "replies": [], "depth": 18}], "depth": 17}], "depth": 16}], "depth": 15}], "depth": 14}, {"id": "ekry4eh", "text": "Checked?", "replies": [], "depth": 14}], "depth": 13}], "depth": 12}, {"id": "ekrxqxt", "text": "&gt;The seller can always say no.\n\nAnd that Sir is how cap rates are created.  Negotiated between the buyer and seller.  It measures at what point the seller is willing to give up a NOI and the buyer will pay for it   It is not a return.  If you think a 5% cap rate is a low return then why is the seller holding out for the higher price.  LOL  Seriously answer that question.", "replies": [], "depth": 12}], "depth": 11}, {"id": "ekte2w2", "text": "This entire exchange has brought a chuckle. Thank you", "replies": [{"id": "ektg6bp", "text": "Judy Judy Judy oops.  Rudy!  Investing should be fun and I love an educated banter back and forth and hope some fun came from me.  But, I'd also like to see some education passed on.  Hope you got some.", "replies": [], "depth": 12}], "depth": 11}], "depth": 10}], "depth": 9}, {"id": "ekrvwwo", "text": "Ugh. Do we really have to stage a full blown thesis defense over someone\u2019s definition of cap rate? Please address.", "replies": [{"id": "ekrxbhj", "text": "It can be accomplished in one paragraph.  If someone is defining cap rate incorrectly on a commercial real estate forum then hell yes.  Why would you argue against education?", "replies": [], "depth": 10}], "depth": 9}], "depth": 8}], "depth": 7}], "depth": 6}, {"id": "el55gvt", "text": "That\u2019s incorrect. If your interest is 5% your loan constant annually is more like 6.3% . So you only have a 70 bip spread. If the deal is fully stabilized at a 7 with no substantial rent growth for the foreseeable future it\u2019s might make sense to attempt to close cash, or low leverage.", "replies": [], "depth": 6}], "depth": 5}], "depth": 4}], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ekrfrvh", "text": "Saw this on Trulia \n\n\u201cYou are the buyer. You (hopefully) are the one that has the money to buy their home. Some sellers don't want to sell. Some sellers are greedy. Some listen to their agents a bit more then they should - and wind up owning their home longer they want to - over a couple thousand dollars.\u201d  100% true!", "replies": [], "depth": 1}, {"id": "ekrhdd9", "text": "Apartment buildings are heavily driven by region.   These numbers in San Francisco are incredible.   In Chicago they are horrible.   In New York it depends on the class of area.  \n  \nYour agent is there to bring you deals, but when it comes to investing, it is completely up to you to run numbers.", "replies": [], "depth": 1}, {"id": "ekri3p6", "text": "With that type of roll you should underwrite to a mid teens IRR and back into the purchase price. Paying full price for anything is silly and there are no other buyers the pool of buyers for $1mm CRE is very small", "replies": [], "depth": 1}, {"id": "ekrijr2", "text": "So you should calculate what your yield will be after leasing up and paying tis. It\u2019s going to be a nightmare to manage with all those small suites and regular rollover. Frankly at that cap rate you should be able to get a long term credit nnn deal. The only way I\u2019d think this was worth it is if there\u2019s major upside on the rents (as in they\u2019re below market)", "replies": [], "depth": 1}, {"id": "ekrim2h", "text": "But impossible to say without knowing all of the details of the deal and location. Just my 30,000 foot view", "replies": [], "depth": 1}, {"id": "ekrj4v6", "text": "You are working the cap rate BACKWARDS.  if similar properties have sold at a 10 % cap rate then the market value is about $85,000 NOI/10% = $850,000!!!  Even at $975,000 you've OVERPAID $125,000!!!  PM me I can screw you for less.  If youR agent can't comp this property GET RID OF THEM!", "replies": [{"id": "ekrz2c4", "text": "Yes! Thats what im thinking!", "replies": [{"id": "ekrza35", "text": "Exactly,  Whether it is YOUR agent or the listing agent they should be able to document how the market value is derived.  Throwing money at shit buys you shit.", "replies": [], "depth": 3}], "depth": 2}], "depth": 1}, {"id": "ekrlsb9", "text": "Why didn\u2019t you get an appraisal?", "replies": [], "depth": 1}, {"id": "ekrxbvs", "text": "I'm really not liking the possibility of 50% vacancy heading into a recession. What would be your plan there?", "replies": [], "depth": 1}, {"id": "ekrxws7", "text": "**Why are you harassing me?**\n\nfrom [froggy184](https://www.reddit.com/user/froggy184) sent an hour ago\n\nI\u2019m not interested in a protracted and stupid argument about a $1mm deal on Reddit. Who would be?\n\n&amp;#x200B;\n\nIt is the same metrics for a $1,000,000 deal as a $1,000,000,000 deal.  I've done both.  Sadly the misinformation is used to scam novices on $50,000 deals.", "replies": [], "depth": 1}]