San Diego Commercial Multifamily 5+ Units

[Cathy S.]

Hi everyone! I am very interested in getting into the world of commercial real estate where the loan you can get is not dependent on your income, and you can seriously increase the value of the property via NOI, simply raising rent by x amount and decreasing some expenses can greatly increase the value of the property. Maybe I'm naive but this seems too simple?

I am looking to connect with other investors who already have experience with commercial properties 5+ units. I would like to start connecting with brokers and analyzing deals. It seems like commercial lenders will readily fund good deals if all the numbers look good.

Perhaps I am over-simplifying things and commercial real estate is difficult to get into because it’ll be me going against full time professionals who only do commercial deals… any insights / suggestions / comments appreciated! I am specifically looking in the San Diego market but open to others.

[Dan H.]

In coastal ca the debt service coverage ratio (DSCR) is problematic resulting in low LTV financing. The resulting large purchase amount (typically in excess of 40%) combined with poor cap rates result in coastal Ca having some additional hurdles. These two items can result in extremely poor returns if the purchase happens to coincide with a period of modest or worse appreciation.

The under 5 units does not have such issues if using Fannie/Freddie financing. 80% LTV, better projected cap rates on properties that investors are purchasing (non investment home purchases typically would have poor cap rate if used as a rental).

In Ca MF (assuming not a new build) is rent controlled.  This limits the opportunity for some rent increases. 

I also fail to see much difference between doing what is necessary to noticeably raise rent and doing a rehab that simply raises the value of a non-commercial home. Most of our investment have value adds that get reflected in the appraisal as part of the BRRRR.

Good luck