Good Evening BP,
I am working on targeting a market as young investor and I feel like I will begin with Small-Mult-family buy-and-hold, specifically Mix-use in my area. I would like to know the best ways to evaluate a small mix-use (Ex. 4 residential and 2 commercial), and the best financing options.
I started with single family row homes in Baltimore City, but if I were to do it all over again, I would have targeted as small 4 unit building... I would probably focus on residential. I'm concerned that vacancies in small commercial spaces have taken so much longer to fill than residential. Unless you use that small commercial space to do your own cash business like laundromat, etc.
@Daniel DiGiacomo The plan is to eventually start my own business in the space, or possibly get a corporate long-term tenant like starbucks. The initial plan is to live in this Mixed-use property without paying rent by having the residential tenants cover the full mortgage of the entire building, including the commercial. I want to know how to value the property, would it be valued as a commercial or residential when I am looking to buy?
Mixed use is my favorite class to own. The different market cycles for commercial and residential give strength to the class. I like to run the building on 11 months of residential income and let the commercial be gravy. If you have more than 4 units it's commercial. If you own in certain entities it's commercial-even if it's a single family house. Have you identified the building yet?
@Dawn Vacek Thanks for the reply. I have identified two buildings. One is a little less than 8K square ft, four-residential with two commercial units, and the other is about the same size with 4 residential and one commercial unit. Is it true that that small lenders will consider the small mixed-use properties for a traditional conventional loan? How do you finance your mix-use properties, and what do the terms look like?
Good Morning, You don't have to be afraid of commercial financing. I own several properties of this size and find it a good niche. Are you working with a commercial broker? Certain lenders focus on commercial and are competetive for your business. Look for a CCIM broker and just call and ask some questions. Owner financing in whole or part is also often possible.
I have a loan with a local credit union which gave me great rates but was a nightmare to close with and another from a local savings and loan with a little higher rate but the easiest transaction ever. Commercial brokers are very different from Residential. Different resources, different viewpoint. Residential is an emotion based sale, commercial is all about numbers and meeting needs. I don't know where Ft. Washington is but I have several contacts in the DC, va, Md are if that would help.
Much of my money for new aquisitions (I'm buying now) comes from refinancing existing properties I own. Sometimes I buy the new property cash (from the refi) and the loan is carried by the old building. Once I have the new property optimized I finance it and use the money to buy the next. Many people work this way in real estate investing when the focus is buy and hold.
@Dawn Vacek I have not began to work with a broker yet since I don't plan to purchase until this summer once I graduate. If any of your contacts are familiar with the Hagerstown, MD area I would love to speak with them. Fort. Washington is right outside of D.C, but I can't afford to invest in commercial property in D.C yet. The refinance strategy would definitely help me to be able to invest there sooner than I thought though!
what is the best way to value a mixed use property? Suppose retail on first floor and residential on second. If I determine the purchase price per square foot of each property type and then apply those prices to the size of each unit type in the building would that be useful?
I owned a restaurant in NY for years, and we had 3 apartments above it. IF you can buy an owner-occupied mixed use and run your business from it, I think it is one of the best risk limiting investments for a first time buyer.
You evaluate the deal based on NOI, just like a larger multifamily. Anything above 4 units will be a commercial loan, at this point in the cycle, around 5% interest, either a 5,7, or 10 year term depending on your banking relationship and either a 25 or 30 yr am.
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