5-Plex in Florida Analysis & Input

[Julie McCoy]

Hey all!  I may have stumbled across a deal in my hometown in Florida this holiday season and am interested in this group's thoughts.  

My background: I currently own two STRs that I manage long-distance, and am interested in diversifying into LTRs.  I have a decent amount of cash on hand but would probably partner with my brother for this deal.  We both have excellent credit.  I have no experience with commercial loans, so that's a big unknown for me currently.

The property:

A 1925 house with a back building that makes up 5 units: 2x 1/1, 2x 2/1, and 1x 3/2, listed at $525,000.  It's classified as a C property but on the edge of B and A class neighborhoods that are quickly developing, and a location that's very accessible to downtown, several hospitals, the airport, and a few blocks from a young, hip part of town.  All units are occupied.

The property needs some updating, but has a newer roof and the listing claims it's been well-maintained; photos show it to be somewhat dated in its layout but with no obvious structural issues. 

The listing hasn't disclosed current rents, though presents them as far below market.  My conservative estimates for market rent are: 1/1 = $825/mo, 2/1 = $1100/mo, 3/2 = $1500/mo.  I'm in preliminary stages of research so I drew those numbers from comps I found online and my sister-in-law's experience of recently living two blocks away.

Allowing for a 10% vacancy rate, I conclude that the overall gross monthly income is $4815.  I estimate monthly operating expenses (including insurance and taxes) to be between $1700-2000.  That gives me ~$2800-3100 net operating income prior to debt service.

Debt service is where I run into questions - I assume a 25% down payment, but since it's a 5-plex, need a commercial loan.  I know those loans are structured differently from residential mortgages, but it's been difficult to find any sort of terms for <$1m loans.  Can someone shed some light on typical terms and rates for small multifamily properties?

Obviously everything would be contingent on inspections and so forth, but if anybody sees red flags I'm missing or something I haven't thought of yet, I'd love to hear it.  Thanks so much!

Julie