5 Unit Analysis & Master Lease Strategy
Hello fellow Pro members!
I am looking to make my first investment. I live in the Twin Cities area, but am from West Central MN, so I have been looking in both areas.
In the summer of 2017 I came across a 5 unit building in my hometown area (house, but considered commercial due to # of units). I had my realtor get a profit and loss, but it was off the market before I could come up with a strategy. According to the county assessor office, it appears the same people own it.
A little about me. I am in my late 30's, and at around 30 I moved to the cities to attend college and obtain my first BS (in Interior Design). I graduated in May '15, and since have been paying off debt (0% credit card) and trying to get financially situated again. Starting over in a new career is not easy on the pocketbook. Additionally, I had to pay for a minor out-patient surgery this last year. So, I am looking to get into REI with little to no money down (preferably no money down). I do have great credit, if that helps in these situations.
I haven't been able to get this property off of of my mind. I recently learned of maser lease agreements. I am wondering if I can propose this to the current owners. I am assuming my payments would ultimately be my down payment, so that if and when it comes time to officially purchase the property, I will have the 20-25% equity.
Here is the info I have:
Asking price was 149,900. However, I did calculations off of 140,900, since no realtor fees will be paid (correct?)
Gross Rents: 34,620
Vacancy (while 2017 was 100%, I took the greatest vacancy rate from 2012-2017): 3%
NOI: 15,745 (includes 8% property management and 10% cap ex)
Debt Service: (I have no idea, I just figured 0% interest with an amortization of 15 years, since I am trying to obtain equity for a loan pay off. Any other suggestions?): 9,393,36
DSCR: 1.68
Cash Flow: 6,351.48
Cap Rate (I have not researched the area cap rate): 11%
Feel free to check my calculations. First time analyzing a commercial property :)
Additionally, while there were no online photos, even when it was on the market, the current rents seem like they might be low. However, it is on a major highway, in a not so great part of town with some run down properties. A positive note is many businesses and restaurants have been added or remodeled on this highway 1.3 miles down the road. It is also close to the downtown area (which has mixed reviews last I heard).
What are your overall thoughts, recommendations, etc.?
Lastly, how much would you recommend having in savings, or readily available, before signing a master lease agreement on this property? My savings has dwindled, but I do have 0% credit card offers usually available , a 10%-ish CC/line of credit, and a private money lender (depending on the deal, of course)
I would of course tour the property first and ask for an inspection (right?).
Thank you kindly for your time and advice!
Anna