What do you think of this deal?
This will be my first commercial property deal. I currently have the property under contract and feel good about the returns, but I'd love to hear what you guys think and how you would break down the deal.
Two identical buildings on one piece of land. One is split into four units, the other is being rented as one single unit. The split building is being rented for 59% more than the single unit building. I've run my numbers based off the single unit tenant staying, but splitting the property into multiple units would be much more profitable.
All units have been full for 8+ years due to the rent being far under market value. The owner is an absentee landlord by his own admission. Renters are currently handling all their own repairs due to the low rent. These buildings are block structure, each with their own bathroom, no furnished heat or AC but some tenants have added it themselves. Very little maintenance issues due to the simplicity of the structure. All of the tenants are on a month to month contract.
Cap rate is 10.19% with the low rent rates. I believe I could increase the rent 22% and still be under market value and likely continue to keep these tenants. Raising the rents will move the cap rate to 13%.
Financing will be done through the seller at 25% down, 7% APR, 30 year amortization with a 5 year balloon.
Cash on Cash is 29%
I'm a passive residential investor. I don't have much experience with commercial other than renting for my own needs. This seems like a homerun in my world. Have I missed anything? Any glaring concerns?
Thank you so much!