Buy multi family without tying up too much capital

[Spencer Dixon]

I'm in madison wi area and looking through south central Wisconsin at lots of multi family properties.

What's the best way to purchase without tying up too much capital?

I can't owner occupy and will likely need to put 20% down but what's the best way to get money back out?

I'm targeting properties that need some work so I can definitely add value and increase rents but once I do that should I go commercial loan route? Not sure the residential loan will have same measure for increased value, not enough comps etc...

Thoughts?

[Taylor L.]

Originally posted by @Spencer Dixon:

@Taylor L.

Right, I've used BRRR on single family homes with conventional loans.

But I'm not seeing the numbers increasing enough ARV and therefore I'm leaving at least 10 to 15% in the deal of my initial investment.

Going the commercial loan route is what I'm thinking but it's a new process to me. If I can definitely improve rental income is there a formula on how much that increases the ARV?

Property Value = NOI/Capitalization Rate

Here's an example:

$100/mo increase in income = $1,200/year NOI increase (assuming no change in expenses). Assuming a 5 cap, that is a $24,000 increase in property value ($1,200/0.05)

Boom! The power of income based valuation.