Milwaukee Mixed Use Multi-Family Deal Analysis

[Jordan L.]

Hi all!

I am looking for a little help and insight on a mixed use multi-family deal I am working on in Milwaukee, WI. There are some interesting facets to the deal that I would love some advice on and also help in determining the value. It is a C class property in a C+/B- area located on a main thoroughfare. The specifics and financials are below:

3 Story Mixed Use Building

• Total square footage: 4,920 sq. ft.
• 1st Floor: Commercial Office Space - 1,400 sq. ft., 4 offices, reception area and conference room
• Current rent - $650/month
• 2nd Floor: 2 apartments - 700 sq. ft., 2 bedrooms, 1 bathroom
• Current rents - Unit 1: $650/month, Unit 2: $650/month
• 3rd Floor: 1 apartment - 1,600 sq. ft. 3 bedroom, 1 bathroom
• Current rent - $800/month
• Total rents: $2,750
• Includes .26 acre build-able vacant lot
• Insurance: $4,400/year
• Taxes: $12,623/year
• Average Commercial Lease in the area: $13 per sq. ft./yr
• Average area cap rate: 8%

Asking price: $365k

As you can tell by looking at the numbers, the property seems to be mismanaged (low rents) and has quite a bit of deferred maintenance to the tune of about $100k in work. This would include a new roof, fixing leaks on each floor and renovating all 3 of the residential units. A big questions are what should I actually be paying for the property, how much is the vacant lot worth and what would the property be worth after I completed the renovations. There also would be a potential to house hack the 3rd floor unit. I am conservatively estimating the potential rents per unit (post-renovation) at: 

• 1st Floor: Commercial Office Space - $1,100/month
• 2nd Floor: 2 apartments - Unit 1: $1,000/month, Unit 2: $1,000/month
• 3rd Floor: 1 apartment - $1,500/month
• Total rents: $4,600

Please let me know you thoughts and any additional information/questions you have. Thank you!