Buying second multi-family

[Michael Hutchinson]

Background:  I have a 8 plex where I have about $200k left on loan at 5.95%.  I have rehabbed it and raised rents from $375 to $700 with full occupancy.  It should value between $850k-950k I think, but haven't tried yet.

Question:   I am debating options to use the equity.  I think my only real option is cash out refinance, but I guess I could do asset based financing if it was more attractive.   Are those really the two choices?   Cash out and use the extra money to by more or pledge the asset on the second?   Is there any reason to do the asset based financing? 

FYI, I am a lender, but focus on residential not commercial so I am unfamiliar the second scenario. 

[Kevin Sobilo]

@Michael Hutchinson, I think the cap rate is your issue. Typical cap rates are in the 8-12% range. I'm sure some are lower because it depends on the market.

So, at 8% you're at about $550k and at 12% you're at about $365k.

I could see it being 8% with the $550k valuation. That would make sense in most markets because that would be $68,750/unit with $700 rent. So, it would meet the 1% rule where there should be a modest positive cash flow.

If you are in an expensive negative cash flow market where people invest for market appreciation not cash flow then I supposed the cap rate could be lower.

Did you have an appraisal done when you bought it? If so, look at the match the appraiser did for the income approach to valuation. It should have what they used for that in your market.