So our business has mainly been buy and hold larger multi family buildings but we have come across a 4 unit that we can not pass up but need some experience advice on which route to go. Currently we can pick it up for $95k and it needs about $30k in rehab. Part of that rehab is that the units are currently two bedrooms but HUGE so we are turning them into 3 beds AND putting hvac that runs into each unit and sub metering water so that the tenants will pay all utilities. They currently have gorgeous hardwood floors, roof is 15 years old but still in good shape and all the windows need to be replaced. Current rent is $685 for two bed, which is low and going to 3 bed would put the rent around $900 or higher. So NOI with this scenario would be around $31k and current cap rate is around 10.8%. So we could do a fix/flip loan and then rehab and fill with tenants and sell to first time investor or similar for a solid property or we could hold for a year, collect some income and tax incentives/write offs and then refi a year later?
From your experience, which route would be better for a profit plan at the end of the day? Meaning, we don't need immediate cash from a sale if holding it for a year or so would provide a better cash out option down the road but could we get the cash out from a lender based upon the NOI value?
Looking for some avenues and thoughts on ways to think about this or maybe things we are missing.
This is a 4plex so it's not valued on NOI & Cap Rate.
It's value is strictly based on the comps in the area.
What have other rehabbed 4plex's sold for recently?
You need to know the ARV to determine the exit strategy.
I am advising my clients to lock up 30 year fixed rate debt mortgages while rates are low. If you don't need the money, being that it is a 4 unit, you can get 30 year fixed rate debt. This debt alone is an asset and worth considering. As the market gets stronger and rates increase, having a property that is renovated, stable and cash flowing might turn out to be a great long term hold for you.
That is somewhat incorrect. The building is still valued, to another investor, based upon the NOI...it's still a business so absolutely the value of the building is based upon the NOI and cap rate. Also there are lenders that will refi against the NOI value all day long, even on fours. The 30 year fixed is not a bad idea, still have to come up with the rehab money then and of course the 20% down, etc, which wouldn't be a huge problem but again trying to stay away from outlaying cash.