All Forum Posts by: Jakobe Smiff

Thanks for the feedback. How would I go about determining the cap rate for my property? 

I recently purchased a 4-plex at $640K, with financing though a residential loan. It was appraised at $647.5K based on the gross monthly rent of $3500 multiplied by the Gross Rental Multiplier of 185. We recently added a 5th unit, renovated the house, and had it zoned with the city as a commercial 5-plex. After the renovations and adding the 5th unit, we are getting monthly rents of $5,600. If I use the same Gross Rent Multiplier of 185, that puts the value of the home now at $1,036K. 

1. Is my math right on this? Will a commercial appraisal follow this same formula for the value?

2. How do I go about refinancing the home on a commercial loan so that we can pull out some of this new equity and continue the BRRRR method?

Thanks!

Hello, we recently purchased a 4-plex (25% down) with a basement area that was storage. We've since remodeled the basement so that it's a great single bedroom apartment. We've also remodeled several other units, increased all the rents, and redid all the landscaping. Just using the gross rent multiplier, we think we've added a ton of value into the home. We'd like to refinance in the next few years and pull out the equity to buy another investment property or home. But the conversion from a residential 4-plex to a commerical 5-plex seems challenging. How should we approach this? I believe our current lender (Fannie-Mae) doesn't do commerical loans.

Thanks!

Erik, thanks for the info. That definitely helps clear some things up.

Part of the reason we're interested in the property is that we are currently renting one of the nicer units and love the location of the home. Our thought was, why continue to rent the property if we could own it and be paying a mortgage rather than rent?  In this sense we could "house hack" and have the other rental units help pay for our mortgage.That being said, we're fairly certain we would move out of the property in ~5 years and keep it strictly as an investment, so we'd like to know if it's worth it from an investment standpoint rather than just a house-hack.

I guess part of my confusion is if the goal of an owner-occupied multi-unit house should be to have the annual net operating income cover the annual mortgage + interest costs (i.e., positive cashflow), or if just the annual rent income should be greater than the annual mortgage + interest costs (i.e., positive debt-service-covergage ratio).

Thanks for the quick replies. The seller provided all previous expenses and rents for multiple years. The previous annual income and previous annual expenses are accurate. The owners were generous with rent and did very little maintenance.

The $800,000 value is an estimate - just based on the current annual income and an estimated 5.6% cap rate. I'd be interested in knowing what you all think the maximum value to consider purchasing would be. I'm not sure if the 5.6% cap rate I've chosen is accurate for the exact location.

I was also under the impression that the basic rule was to estimate that expenses would be 50% of the income, and up to 65% of the income if owner pays trash and water. The building is old and may need bigger repairs in the future. But it's also registered as historic, so >$10K repairs have a 20% tax credit.

Hello,

I'm new to the forums and was hoping to get some advice about an multi-family investment opportunity.  In general, I'm curious if this is a good investment opportunity long-term and what other information I should know to help make the decision.

Here are some of the numbers:

Property Value: Estimating ~$800,000, but it hasn't been officially appraised since it was purchased 10 years at $500,000.

Taxes: $4,000

Insurance: $2,100

Year Built: 1912

5 Total Units: 2Br/1Ba, 2Br/1Ba, 2Br/1Ba, 1Br/1Ba, Studio

Utilities: Owner pays only water and trash.

Mortgage: Despite being zoned as a 5-plex, the property has been approved for residential mortgage previously (one unit classified as storage during appraisal).

Previous Gross Rents: $45,480 (previous owner was very generous with rent to family/friends)

Estimated Gross Rents: $69,600 (based on market value)

Previous Annual Expenses: $12,500 = 27% of gross rent. (including: water, maintenance, repairs, insurance, taxes, licenses, etc.)

Estimated Annual Expenses: $45,240 = 65% of gross rent. (including everything mentioned above).

Other: All units have been routinely occupied and the location is excellent.

I plan on managing the property myself and living in one of the units, but may ultimately live elsewhere and use a management company.

Thanks,

Jakobe