My Multi-Family Property has a 14% cap rate. So what?

[Ryan Dunne Ewing]

I’m one year in to owning my 4 unit multi-family property. Bought it for $209,000.

i have dramatically remodeled the building in under a year and doubled the gross monthly rent income.

As of right now I have a cap rate of 14%. Remaining remodel costs and associated rent increases bumps the cap rate to 15%.

A commercial lender in my area (Charleston, WV) said they value property around a 10% cap rate, which would put the value of the property (subject to appraisal) at around $458,000.

Someone help me out. What do I do with this thing? There’s a gigantic delta in anticipated selling price and the money I’ve put into it. We’re talking about a $130,000 difference in just over a year! That would ghost my student loans and I could start all over! Maybe the flip and sell is a terrible idea? How can making 130k in under a year be terrible?

Then again, my cap rate is really high. Average cap rate is 9-10.5% here.

Do I try to refinance? If so, how does that work if I wanted to buy another building but I don’t have any liquidity (besides an oh oh fund for emergency repairs).

Or, do I just sit on the property, collect my rent checks, and hang out?

Thanks for any and all advice!

[Chase Louderback]

If you can refinance and still achieve a healthy cash flow with all of the rent bumps and renovations that you have done, then I would do that.  You could then pay off your student loans or move that money into another investment.  Regarding your liquidity, it would be wise to set some of the refinance funds aside for an emergency fund/additional liquidity and then reinvest the rest.

Another option that you have would be to 1031 exchange the funds into a larger property that you can do a similar strategy with.

Finally, I would call an appraiser, but 4 units and under are still residential properties and will be valued by a comp analysis rather than the income capitalization approach used for commercial investment properties.  What do the comps for similar style properties to yours sell for right now?