Multi family Commercial Thumbrules/Guidelines
What are some thumb rules or guidelines while investing( For eg : $500,000 to $1,000,000) in commercial multi family apartment units ?
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Here are just a few off the top of my head- these are "general rules" and don't always apply as there are always exceptions. These are for commercial multifamily in general.
Expenses should be anywhere between 40-50% of the income from the property.
10% economic vacancy assumption.
Breakeven economic occupancy should be around 75%+-.
Look for at least a 200 bps spread between your interest rate and your cap rate.
We target 8% cash on cash in y1 and target an average cash on cash over 10% over the life of the deal.
We target 15% IRRs and want to see a 2X equity multiple over a 5 year hold.
Average rent is less than 20% of household income within a 2 mile radius.
Trending demographics (population growth, job growth, income growth, good supply and demand balance, etc)
$250-350/unit for insurance
If there is onsite staff estimate $900-$1200/unit.
Properties with 50+ units can start to afford onsite staff. Assume 1 onsite staff member for every 50 units.
3-5% property management fee depending on the size of the deal.