Mixed Use Investment Purchase
I currently own a 9 unit multi-family and a mixed use fourplex both of which has commercial financing, so I'm familiar with the typical financing arrangements and valuation. I'm in negotiations to purchase a 6 unit mixed use building with 3 residential units and three commercial spaces. The apartments and the commercial areas are newly updated. The seller divided three commercial units of a much larger original space thinking that smaller spaces would be easier to rent and there are a few additional items needed to finish off the commercial area. Some of these items will be completed by the seller and I'll need to complete some after I close. Two of the commercial spaces are ready to rent however. The immediate area is densely populated with many other mixed use buildings and there are low number of vacancies though out the immediate area. I believe the commercial spaces would rent fairly quickly. Likely tenants would be places like Telephone Stores, Delis, Insurance agents and various mom and pop type operations. Surrounding neighborhood is a C class area with some gentrification occurring in spots. Residential rents are below market by about 20% and all tenants have been there for 5 years or longer. If I'm able to bring the residential rents to market and get the commercial portion rented, NOI would be $ 40,000 on a sale price of $ 280k or a cap of about 14% (caps in this area range from 7%-9%). However, I'd have to get to that point as the commercial is completely vacant. Cash burn is about 6000 to 8000 annually until at least one commercial unit is rented. I can get 80% financing from my bank and the seller is willing to hold 20%. Here are my questions:
1) What do you think of this deal?
2) I read a string here where someone had to get a commercial inspector for a 10 unit mixed use property which cost significantly more than a residential home inspector. For my fourplex mixed use building, the bank accepted a regular residential home inspector. Their position may be different here. Regardless of their position, would it be worth the cost for me to engage a commercial inspector?
3) For a property this small, it is typical to have a gross lease or a net lease? Obviously, if I could lay off some of the operating expenses, my numbers would look better.