12 unit Multiplex deal analysis

[Patrick G Ndouniama]

Hi Everyone,

I have been doing a few rental properties in the past couple of years and I am now interested in investing in a multiplex. I am currently looking at an opportunity in the Lansing, Michigan Market.

The multiplex is a 12 unit in the North West Lansing area (Old Oakland). I think the area is average (not the best, not the worst). The property is situated in a commercial zone with a few commercial building around it. There is a recycling company one block away and a waste water treatment a mile away. For now I don't think it is necessarily a problem since those seems to be out of sight from the property and there is no disturbance such as noise/smell... but I am curious if anyone thinks otherwise?

The building is in decent condition and currently 9 units are being rented (rents between $600 and $700). 3 units are currently being renovated (paint + new floors). Tenants pay electric and owner pays for water/sewer, gas. The asking price is 420k but I believe I can get it down to 400k or below.

I don't have all the numbers yet but I asked the seller to provide rental history and expense reports etc... I wanted to know what is a good way to estimate the expenses to calculate the cap rate for a 12 unit property? Is the 50% a good estimate for a 12 unit in decent condition in an average neighborhood?

Also since I am new to the multiplex investing, what are the common pitfalls that come when dealing with 12 unit multiplexes? What are the things I need to be extra careful about? What are the mistakes people commonly do when dealing with that type of properties?

Concerning the financing I will be going for a commercial loan. Initial estimate I got was a 20 year commercial loan at 6 to 6.5 interest rate (5 year term). I am not familiar with commercial loans and this seems pretty expensive to me. Does this sound reasonable? I am planning to shop around but wanted to know if it is possible to get commercial loan on 30 year with a fixed rate? What are the standards for these type of loans?

Sorry for the long post.

Waiting for your advice! 

Thanks