Beginner: Analyzing and Financing Small Mixed Use

[Collin Ordonez]

Hi everyone! First post here on BiggerPockets. Currently I am house hacking a townhouse and I am looking into buying a multi family property for my next deal. I recently found a listing of a mixed use commercial building in the downtown historic district with 5 apartments (3 - 1bed/1bath and 2- 2bed/1bath) with lower level storefronts that are fully occupied. I would like to get some advice on financing and analyzing small commercial deals. Here is the current information I have on the property :

List price: $1,450,000

NOI : $91,091

Cap Rate: 6.28%

I have the following questions to begin with:

1. Financing: What are the first steps I need to take to be able to get approved for a commercial loan for this property type? It’s my understanding the best route may be to reach out to small local banks. For a downpayment I believe I could make a 25% downpayment between personal savings and investments from a couple family/friends. Would it be possible to get a bank to give me a loan or would I need to partner with someone with commercial real estate experience?

2. Analysis: What are the factors or calculations do I need to consider when underwriting a deal to decide if the property is a fair value and worth pursuing. Should the main focus be on cash flow and ROI? With current market conditions what is a good target for cash flow and ROI.

I know these may be very basic questions for the big picture but I hope it’s a good start to begin a conversation.

[Brittany Minocchi]

Don-Carlos pretty much hit the nail on the head, and I'll echo the part about possibly needing more than 25% down on a commercial loan like this. Don't forget all the extra costs as well. Commercial appraisals alone are quite a bit higher than a residential appraisal like you may be used to. I'll also add that your FICO is going to be a crucial factor in determining your rate and max LTV. I've worked with lenders that qualify the property and it's potential income more so than the borrower (with the exception of FICO and level of experience, no income docs required or DTI calculations), but expect the interest rate to be higher.