Buying a Multi Unit Mixed use property

Buying & Selling Real Estate

Buying a Multi Unit Mixed use property

Member since 2026 · 3 posts · 0 votes

What pitfalls am I missing...

Property is built in 1900 had 2 owners in past 25 years, just put on new roof a few years ago..... Would want contractor to look at it first (can that be contingent on deal if I make immediate offer...if he finds major problems walkaway I know you can for residential but commercial is a different beast to me) selling for $439,000 4 apartment units 3/4 rented at $850/mo + electric...water, trash included in rent and store front (empty) I would lease

mortgage rate is 6.8% for 15 years with commercial lender they offer other products... 3/1, 5/1, 7/1 ARM products as well as 10 and 15 year fixed. (3/1 ARM best rate is 6.00%) If rates were to drop 3/1 ARM would probably be best but fixed is easier to calculate

taxes are $6,000/yr

Ins I ran at 1.5% $6,500 because I'm unsure at the moment and it's a weekend

Total comes to $3100/mo with 20% down 87k using paid off rental as cash out potential will update with rate hopefully Monday morning

I would be using a paid off rental property SFH as collateral, renter has been there 11 years never missed a payment worth around $150k at 80% LTV 120k leaving 30k equity for repairs/payments/closing costs would be at lower rate update Monday morning hopefully

I still have income from my full time job 36k/yr before taxes...lucky enough to be able to pay everything on wife's income both houses at foreclosure and auction and I put everything in retirement accounts Roth IRA's both/real estate investments I say this to state I have no bills

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JD MartinBusiness Member
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Rock Star Extraordinaire · Northeast, TN · Member since 2015 · 10k+ posts · 16k+ votes
3mo
On something that old I would definitely get the services of an experienced GC that can look at all of your major systems closely. Beyond that what do you project the store front to rent for? What are the cap rates in your area right now?
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Richard F.
Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes
3mo
Yes, look very hard at plumbing and electrical complete systems. If it is wood construction, expect rot and/or termites, especially kitchen and bath subfloors and joists. Water runs downhill...
If it is concrete construction, assume most of the pipes and wiring is buried in the concrete, and in poor condition. Electrical panels will need upgrading if not done prior, which usually requires complete rewire for something that old. Tenants these days have a lot of electrical loads...small kitchen appliances, computers, hair dryers, the list is endless, and old systems often do not handle them well. Plus it becomes a fire hazard when there is only one outlet per wall, and they start running extension cords all over.
As for that "New" roof, did they tear off the old, or just lay over? How many total layers are up there? You need to know.
Commercial is different in every regard- LL/Tenant laws do not apply. Commercial leases are entirely different, and very dependent upon type and size of Business might rent the space.
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Clive Owen
OP
Member since 2026 · 3 posts · 0 votes
3mo
So I'm not sure how to find cap rate in my area... I'm a residential real estate investor with 2 investments (I was using 1% rule for return ie: $4,390/mo) this is my first commercial attempt I can calculate it for you and break it down....$850x 4= $3,400 not sure how much a store front leases for or what you can charge trying to call around NEVER messes with this before it's 2,000 SQ ft $.50/SQ ft is $1,000 low ball to $900 almost same as a 600sq ft apt $800/mo minus water
taxes are $500/mo
Ins at 1.5% of property $550
Water $250/mo
Repairs per month fund 0.5% of monthly $200
$1500/mo x 12 months $18,000 throw in extra 2.5% for error $480
52,800-18480= 34,320

34,320/439,000= 7.8% if I offer less cap goes up higher but even on 1% rule it's almost there/ there depending on what I can get for store front lease
WILL make calls all day and try to get better estimates
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Clive Owen
OP
Member since 2026 · 3 posts · 0 votes
3mo
Just spoke to realtor he's sending over lease info, Store front rents for $1,700/mo brings cap rate to 9.73% and way above 1% return
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- Richard F.
  Honolulu, HI · Member since 2008 · 3k+ posts · 2k+ votes
  3mo
  Quote from @Clive Owen:
  
  Just spoke to realtor he's sending over lease info, Store front rents for $1,700/mo brings cap rate to 9.73% and way above 1% return
  All Realtors are not created equal. In fact, in many locales, Commercial properties (sale OR lease) are handled by entirely different RE Companies than Residential properties. Be sure your guy is well versed.
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David Evans
Real Estate Agent · MO & OK · Member since 2025 · 16 posts · 6 votes
3mo
CAP rates don't mean the same thing to all realtors. If they live in the commercial space the odds are they will know what they are doing. This should give you a quick lesson on how
The CAP Rate Formula

To calculate the CAP rate, you divide the property's Net Operating Income (NOI) by its current Market Value (or purchase price).

Capitalization Rate=Current Market ValueNet Operating Income (NOI)×100
- Net Operating Income (NOI): The property's total annual revenues (rent, parking fees, laundry) minus all necessary operating expenses (property taxes, insurance, maintenance, management fees). Note: NOI does not include mortgage payments or capital depreciation.
- Current Market Value: The present value of the property on the market, or the actual purchase price.
- The Big Catch: CAP rate assumes you pay cash. Because it completely ignores mortgages and financing terms, it shouldn't be the only tool you use to evaluate a deal, but it's an excellent way to compare similar properties side-by-side.
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