Financing an 8 Unit Apartment Building

[Chad Day]

An 8 unit apartment building recently came on the market in my town for 250k.  The monthly rent totals $3600.  I figure it would cashflow about $1500 a month.  I ran it through the buy and hold calculator and the numbers are great, but I don't know if a few of my assumptions are off.

This would be a commercial loan. What kind of APR's should I expect? I used 20 years @ 5% with 25% down. Is that about right? This would leave me without much cash in reserves. Does a commercial loan require you to have a years worth of operating expenses in reserve? Do they count future rental income in that number?

I also assumed $300 a month for insurance.  Does that sound right for an 8 unit apartment building?  It is small, all units are 1 bed 1 bath.

Thank you!

[Michael Ealy]

Chad,

I believe you're underestimating the expenses. You're probably forgetting capital expenditures for example.

Rent of $3600 means your NOI is $1800 following the 50% rule. NOI is not your cashflow. You need to deduct your mortgage payment.

At 4.7% interest, 30 yr amo, your debt service is $972.45/mo giving you a cashflow of $827.55/mo.

It's still a decent deal - a 15.88% cash on cash return.