Providence 5-Unit Deal Teardown
When the listing broker
is the seller.
A 5-unit Providence multifamily asking $1.295M. The listing broker is also a co-owner. The current owners purchased the property seven months ago for $850K and are now asking $445K more — backed by $62.5K of HVAC permits that haven't been inspected. At the asking price, the broker's effective pro forma cap is 6.86%. An honest expense recast shows 4.68%. The deal doesn't service its own mortgage.
A short walk-through of how I underwrite a principal sale — what the pro forma hides, why the rent upside is locked, and what price a disciplined buyer would actually offer.
A principal sale wearing a third-party listing's clothes
The subject is a 5-unit multifamily in East Side Providence — one studio, three one-bedrooms, and one two-bedroom across a 2,420 SF building from 1930. Asking is $1,295,000, roughly $535 per square foot.
The listing broker is also a co-owner of the property.
This is a principal sale — the listing agent has an ownership stake in the asset they're representing. The disclosure exists (the agent's name appears on the deed and on the listing), but it changes the economics of the listing relationship: the broker has incentive to maximize the sale price, not negotiate it. Every pro forma claim, every cap rate framing, every "potential" rent figure should be read with that lens.
The cost-basis story tells you what's really happening. The current owners — a two-person LLC — bought this property in fall 2025 for $850,000. Seven months later, they're asking $1,295,000 — a markup of $445,000, or 52% over their own acquisition price. The only documented work product during ownership is a city-permitted HVAC installation (five ductless heat pumps, ~$62,500) — and as of the listing date, those permits are still active and uninspected. No closeout. No inspection sign-off. The work is physically on the property; the city hasn't certified it.
Acquisition + permitted-but-uninspected work = $912,500 of seller-side basis. The ask exceeds that basis by $382,500 — a 42% premium in seven months. A buyer is being asked to pay nearly four hundred thousand dollars in seven-month appreciation on a property where the only "improvement" the seller can point to isn't even verified by the city.
Three numbers tell the story
The broker's marketing is built to make this deal look fundable. Three numbers — anchored at the actual asking price, using public-record facts only — say it isn't.
The listing pro forma shows a 6.86% cap on broker-stated NOI at the actual asking price. The broker's pro forma omits vacancy, property management, maintenance, replacement reserves, and CapEx entirely. Adding them back in — 5% vacancy, 8% PM, $800/door M&R, $300/door reserves, 5% CapEx — drops the cap to 4.68% at the same asking price.
At the $1.295M ask with 25% down, the property generates $60,661 of honest NOI against $75,596 of annual debt service — a DSCR of 0.80x. The building does not service its own mortgage. Conventional lenders fund at ≥1.20x; portfolio lenders flex to 1.10x. This deal is below either threshold.
The seller is pricing in $62.5K of HVAC work — but the permits are open and uninspected. The appraiser will not credit work the city hasn't signed off on. The lender will not lend against unverified improvements. The buyer's appraisal will come in low, the lender will refuse to bridge the gap, and the buyer will be asked to bring cash to closing.
Two of five units don't roll until May 2027
The broker pitches rent upside as part of the deal. In-place rents are $9,195/mo ($110,340/yr). The broker frames market rents on the three month-to-month units at about $10,495/mo ($125,940/yr) — roughly a $1,300/mo lift available to a buyer willing to bring those units to market.
That lift is real on paper. It doesn't show up in Year 1.
Two of the five units (1F and 2R) are on fixed leases that don't expire until May 2027.
That's ~12 months past a typical close. The two locked units cannot be rolled to market rents inside the buyer's first year. The lease-up upside referenced in the listing is not value the buyer can capture on day one — and the lender, who underwrites to day-of-close income, will not qualify the loan on rents you cannot yet collect.
What's actually fundable in Year 1: the three month-to-month units, roughly $15,600/yr of GPR lift if brought to market on the standard notice cycle. Useful, but not transformative — and even at that level, the deal still only lifts DSCR from 0.80x to about 0.97x at the full ask. The deal doesn't pencil even if a buyer executes flawlessly on the only lease-up they're actually allowed to do.
Anchored on what the seller actually did — not what they hope to sell
A disciplined offer rewards verified value: the seller's basis, plus reasonable carry, plus the value of completed improvements. It does not pay for pro-forma upside the buyer hasn't yet executed.
The price ladder:
| Anchor | Price | Cap (AS-IS) | DSCR | What It Represents |
|---|---|---|---|---|
| Full ask | $1,295,000 | 4.68% | 0.80x | Seller's stated price. Property does not service its own mortgage. |
| Opening offer | $912,500 | 6.65% | 1.14x | Seller's cost basis. No profit for a 7-month hold on uninspected work. |
| Target close | $975,000 | 6.22% | 1.07x | Basis + modest carry. Conditional on HVAC permit closeout before contingency removal. |
| Walk-away ceiling | $1,050,000 | 5.78% | 0.99x AS-IS 1.20x at market | Only justifiable if both the HVAC closeout AND the M2M lease-up materialize cleanly. |
The walk-away sits $245,000 below the asking price. That is not buyer aggression — it is the gap between what the seller verified and what the seller projected. Above $1.05M, the buyer is paying for value-add the seller didn't create.
DSCR figures throughout this analysis assume 25% down, 30-year fixed financing at approximately 6.75%. Different financing terms produce different DSCRs at each price point.
Four contingencies on any offer at or near the target
1. Seller closes out the HVAC permits with city inspection before contingency removal. No closeout, no deal.
2. Documented verification of the two locked-lease terms — start date, end date, current rent, tenant status.
3. Appraisal contingency held to the higher of $1,050,000 or the contract price.
4. Seller credit for any post-inspection deferred-maintenance findings.
What to do when the listing broker is the seller
This is not a deal I closed. It is a deal I underwrote.
The structural lesson here is the most transferable: principal sales are common in small multifamily, and they look exactly like any other listing on the MLS. The disclosure exists — agents are required to note their ownership interest — but it's a line of text, not a flashing warning. Most buyers don't read past the cap rate.
Five questions worth asking on every multifamily listing, principal sale or not:
- Who owns the property? Pull the deed. If the listing agent's name appears, it is a principal sale and every pro forma claim deserves a second underwriter.
- When did the current owner buy, and at what price? A short hold with a large markup demands documented value-add work — not just a price increase.
- Are any permits open or uninspected? The city's permit portal is public. If recent work is filed but not closed out, the appraisal will not credit it.
- What rents are real today versus what rents does the pro forma assume? Pull the actual leases. If the upside requires units that aren't rolling for 12+ months, the lender will not underwrite it.
- Does the pro forma include vacancy, real property management cost, CapEx reserve, and an honest maintenance line — or does the expense ratio drop below 30%?
Five questions. Forty-five minutes of public-records and pro-forma work. If you can answer them on a specific deal before you write an offer, you have an underwriting position. If you can't, you're trusting the listing agent's framing — which on a principal sale, is the seller's framing.
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