First MF Deal - Need confirmation

[Trent Barga]

Hey all have my first MF deal I'm working. It's a D property in a B+ to A area. Long term owners who haven't managed well. Not updated at all. Lots of value add here. 

Numbers: $700k purchase on 2 - 4 unit buildings (8 units).  Getting $750/unit (roughly). Bank is asking for 25% Down ($175k) on a 20 year loan with 5 year adjustable. Interest rate will be around 6.5 to 7.25%. Taxes around $4k per year and assuming $3k for insurance. Property has baseboard heat and window units so low cap ex there.

I have Home Equity Lines up to $225k so part of that will be for the DP of $175k the rest used to update exterior and other vacant units. 

Once updated and cleaned up I can get $950 for lower units $900 for upper units. 

Goal would be to refinance the entire loan if rates are lower to get my DP/Rehab cost back. Or if rates go up get a second line to pull my home equity line out so I can free it up.

Once I get property stabilized I believe the value would be around 1.1 to 1.2 million with a 7ish cap (same cap rate I'm purchasing at)

I'm back and forth on if this is as good as I think it is. Currently have other purchases and businesses going so trying not to stretch out reserves and monthly income too much.

Would love your educated thoughts on the deal!

[Jake Kucheck]

This seems extremely like spreading yourself too thin, and you'd be better off building up more cash so that you can use actual cash for your down payment as opposed to using the HELOC- this seems very much like a project that will be longer and more expensive than you hope (most are like that, but this one especially so) and so I'd want to finance it an awful lot more conservatively than it sounds like you're considering doing. If the mechanicals (plumbing, electrical, HVAC etc) are older than 15-20 years, you're going to have big ticket replacements. If the roof is older than 30 years, you may have that too. Now you've exhausted what's left of your HELOC and you haven't turned a single unit yet.

Is this still possibly a deal?  Maybe.  Increase your CapX budget by like 75-100% and do the numbers then.  Also extend your turn time (time you will be drawn on your HELOC) by 6-9 months more than you think.  Is this still a deal you want, or could you find something else with less risk and equal reward?