New Construction BRRRR

[Jatinder Dhaliwal]

Hey BP community, I really need some help! This is my first post/ question on here, and I would love any insight from any pros regarding my situation and double check my numbers to see if it is correct. My family currently owns a property (about 4,000sq ft) that is an existing retail space occupied by us. My plan is to convert about half of the location into residential units (10 units total), creating a mixed use building. I am in the midst of just creating a timeline and financial expectations prior to starting any physical work. 

My numbers are as such:

Current Loan on Property Left: $400,000

Current Rent Roll- $120,000 gross, Current NOI= $102,000 before debt service

With all the soft and hard costs, the Construction Costs would roughly be about: $1,200,000

So we are all in for about $1,600,000 ( Construction Loan + Current Loan)

Let’s say that at this point everything is built and everything is 100% occupied....

This is in California by the way. 

Cap Rate in this area: about 4-5.75% with our property probably at 4.5% ish. 

New Rent Roll: 2,000 each apartment + 10,000 for retail a month= $30,000 x 12 months= $360,000 gross annual income. 

(minus about $50k in expenses) the new NOI will then be about= $310,000 before debt service. With this NOI and a cap rate of about 4.5% we would have a property value of $6,888,888 (310,000/0.045). (NOI/ Cap Rate)

Theoretically, if and when I go to do a cash out refinance and convert this into a permanent loan with, let's just say 75% LTV, that would leave me at $5,166,666. (75% of $6,888,888). Minus the previous loan of $1,600,000 we are finally at ...........$3,566,666.

Did I do that right? And would this deal allow me to walk away with a cash out of $3,566,666 to use to purchase other properties?