Payback Expectations: Commercial Vs Residential

[Lorraine Pennington]

Hi there, 

My strategy thus far has been buying D class buildings in B/ C class neighborhoods. I spend on average about $5k on each unit to rehab and am a buy and hold investor. I've done this to 22 units and average 20% COC Net incl. reserves and debt obligations. I pull out the cash that it took me to rehab right away and leave my down payment as the figure to calculate my COC returns.

It has taken me on average about a year to stabilize the properties and 1 year for the payback on my rehab expenses. This is where my question to you all comes from... 

I've stepped up to commercial and although I am dealing with higher dollar amounts, I am expecting my rehab investment to be returned to me within 1-3 years. My latest project was forecasted to take me 4.5 years to payback the rehab expenses - it needed major capital improvements. I wasn't able to negotiate the selling price lower to compensate - so I walked from the deal. However, since then my mind keeps going through the figures and I find I am trying to convince myself that perhaps my expectations of capital investment payback need to change if I'm to scale up. 

Would you mind sharing your expectations so as to give me a reality check?! 

I appreciate any and all feedback. 

Thanks, 
Lorraine