Real Estate Strategy Risk/Reward - Need Insight

[Edmund Chiang]

Hi Guys, need a little advice/insight on a potential power move:

1) Currently just closed on a 16 unit multifamily in MA by the following method: $250,000 cash and $500,000 cash out refinance from our personal residence single family home. As such, this commercial property on paper was a cash deal and does not have a mortgage attached to it. (our personal residence does)

Gross Income: $170,000

Net Income: $90,000

Debt Service: $28,000

ROI: $62,000

Thinking about doing a cash-out refinance of $500,000 from this commercial 16 unit building to buy the following 2 multifamily buildings also in MA. This would incur an additional $40,000 in Debt Service to Property #1.

2) 30 Unit Multifamily (Stabilized) Fully occupied (Massachusetts)

Gross Income: $290,000

Net Income: $145,000

Debt Service: $55,000

ROI: $90,000

3) 32 Unit Multifamily (Stabilized) Fully Occupied (Massachusetts)

Gross Income: $275,000

Net Income: $135,000

Debt Service: $55,000

ROI: $80,000

So effectively by cashing out refinancing I would be able to buy two more properties and increase the following:

Gross Income $170,000 to a total of $735,000

Net Income $90,000 to a total of $370,000

Total Mortgage Balance: $500,000 to a total of $3,000,000

Debt Service:  $28,000 to a total of $178,000

ROI: $62,000 to a total of $192,000

In terms of pure cash out of pocket of $250,000, making $192,000/year with that would be 76.8% Cash on Cash Return (ROI). Let me know if I missed anything or any potential risks, pitfalls or simply a don't do it reasoning!

Best Regards,

Edmund