All Forum Posts by: Derek Caffe

I'm looking at a residential property that is zoned for both residential/ commercial use. It's over 6,000 sq. ft. and I'd like to use an FHA 203K loan to convert around 5,000 sq. ft. into office space while living in 1,000 sq. ft.

My question is, to anyone who has done this. What are the common challenges? I'm figuring renovations would be cheaper for B- office space conversion rather than keeping all 6K+ sq. ft. residential. Is that a safe assumption? Just looking for general advice on subject. Thanks in advance.

UPDATE: I did some more research on the triplex and felt comfortable it would appraise with additional equity beyond cost plus renovations. Made an offer and the sellers decided to pull the listing and keep the property for themselves. So the hunt continues for a residential multifamily property. Thanks to all who provided feedback.

Thank you all for your responses. 

@Brent Coombs, I couldn't find any nearby triplex comps so I used duplexes/SFH's instead. I sent my real estate agent a request for comps. But the numbers do most certainly cash flow.

@Account Closed, appreciate your feedback. Yeah it's less of a concern, but I'd still like equity to use towards additional deals. I'm going to speak with the seller further to seek a win-win deal. Thanks again.

@Account Closed, I feel bad for saying this, but it makes sense at listing price. It's a triplex, bought by an electrician and partially rehabbed. He's asking $95K with around $25K left in rehab costs and rents around $1890 being conservative.

If I add in property management 10%, vacancy of 10%, and capital reserves of 10% of gross income, it should cash flow at $125 per door. This is me being conservative. 

I expect the real cash flow to be around $200 per door, which is fine with me.

Thanks for your reply @Logan Hicks. That's the thing as I'm looking for other duplex in the area and they all cost more even including rehab costs and cash flow less. The main issue is equity. I'd potentially be buying a deal where I may be a couple thousand upside down on a cash flowing, buy & hold deal.

P.S. - I try to stick to multifamily since I'm ultimately aiming for apartment investing in the not to distant future.

@David Dachtera, my main goal is cash flow, which the property does fine on. I won't get any equity, but (speculating) the area is currently undergoing gentrification and should be considered a "great" neighborhood in another 3 - 4 years. My main hang up is that as I look at potential comps, it's at the higher end of things. I slightly feel like I'm not being a good investor, if that makes any sense. Like there are all these rules, and I'm not adhering to them.

@Tom Myers, it would be financed through a FHA 203K loan which I'm preapproved for. So I believe my interest rate would be lower than most seller financing. What sorts of exit strategies would you consider? My current strategy is to simply buy & hold. Should I be concerned with other exit strategies?

I'm conflicted BP. There's a legal triplex I'm looking at that would cash flow with my financing, market rents and expenses, BUT it's priced at or above market with at least $25K in renovations conservatively. I just can't find the comps to support the price in its current condition or even ARV. Considering my strategy is buy & hold, is there ever a time you would pay above market if other markers (cash flow per unit, cash ROI, ROI) are met?

P.S. - I'm already certain there will be the HELL NO crowd, but I'd like to ask anyway.

It definitely does @William Hochstedler. Thank you. 

@JR T., that's the plan. Thanks.

@William Hochstedler, thanks for the reply. What's exactly meant by "mechanical scope"?

Thanks for the reply @J Scott, I haven't read the entire book yet. I just started and was wondering how I should be interpreting and/or adapting the information considering my focus was multifamily properties. I'll finish the book and then come back with more detailed questions.