Cashing out and would like opinions on leverage amount!
Greetings:
I am doing a cash-out on my 4-plex. I bought it in 2013 for 274k and it is now appraised at 500k. Even so the appreciation is nice, the Gross rent totals $4640 and has room to go to $4800. Note, I pay electric and heat/hot water in this building which averages $405 p/month. If I look at the 1% rule, at the current income, I am figuring a value of $464,000 and then after subtracting the electric and heat/hot water, I am getting $423,500. Also... at a value at 415k (mortgaging 290,500), I get a 12% cash on cash return w/GRM at 7%. My CF is $1025.00 per month. If I do the full 500k, my numbers are as follows:
1% Rule - 0.9
GRM - 9%
CF - 720.00
Comparison..
18.3 years payoff (5%) versus 8 years payoff (12% Coc). So... Am I utilizing the wrong strategy? Would this be considering over leveraging? Bottom line is I could either by 1 building with minimum Coc of 12% or 2 with Coc of 12%. Each new purchases giving me an extra $1100 p/mth (estimate). Would lobe opinions on this! Thank you. M.R.