Can this Residential Commercial Strategy work?

[Chris John]

Rents in my corner of the world have risen rapidly over the past 10 years or so.  I'm finding several smaller commercial, residential properties (5-10 units) that are very below market on the rents.  I apologize for my ignorance on potential rules and verbiage, but I'm wondering how realistic this strategy is in the "Real World"?

I'm vaguely familiar with debt yield and a former student that's now a commercial lender told me that their bank is comfortable at around 8-10% (10-12 multiplier).  My thoughts, for example:

Buy a 1M property with a current noi of 70K for a cap rate of 7%. Based on the debt yield, I'd apparently have to put down somewhere between 150-300k although I'm guessing at least 200 - 250k for a 75-80% LTV. I'll add another 50k in renovation costs and assume 300k (250k + 50k).

Then raise rents (a property we're looking at has rents at around $900/mo, but my property manager feels like he can get them to $1400-1500/mo over a couple of years). So, assuming all of this is accurate and doable, let's assume a new NOI of 100k.

If I assume a 7% cap rate (what I bought at in this fictional scenario), it should sell for around 1.4 million and I'd roughly double my 300k in a couple of years.  What I'd rather do is refinance it for 1M - 1.2M (again the 10-12 multiplier), get my cash out plus a little, having a cashflowing property and money to go do it again.

Is this something that people do?  Is there more to it than this?  Would a lender give cash out like this on residential?  I just don't know enough about commercial, so I'd love feedback.

Thank you!