is this mixed-use deal good for my first move?

[Cory Robinson]

I am new to real estate investing and have been soaking up knowledge for about 2 months learning to analyze deals and leverage the equity in my person home for funding. I am located in the Hudson Valley, NY.

I came across a deal for 500k which is 4 apartments (3x 1 bed and 1x 2 bed) and 2 retail storefronts making up about 25% of the total building, located on Main St in a Village. All the apartments are occupied and the larger storefront is occupied, so the only vacancy is 1 storefront, which is attractive to start out as my first investment since I don't need to fill vacancies right after closing the deal.

Even with the current rents which I believe to be slightly below market value, and the vacancy, the cashflow is about +$225/month and accounts for 15% to repairs, capex, and vacancy, and 8% to property management (which I plan to do myself up front). An additional +$750 in cash flow available once I fill the vacant storefront. Current income = $5,825 and expenses = $5,600.

The units are all livable (and occupied) but could definitely use some love and modernization/rehab to get up to market value rents. I plan to do this minor rehab as the current leases expire and increase rents, adding value to the property. One of the 1 bedrooms can also be reconfigured to turn the 'office' into a second bedroom to add value. Eventually I'd like to refinance and pull out cash to move into my next deal.

I am borrowing all the money to start out, 375k in a bank loan and the 125k down via home equity line of credit against my current home. Ill have extra credit available in the HELOC for holding costs, closing costs, and repairs as needed. I will use all my cash flow to pay down the borrowed HELOC as fast as possible. I also work full time and make solid income as a secondary cushion.

Since I am new to this, I am nervous jumping into 6 units and a mixed commercial use as my first deal, and feel like I might be missing something, but it seems like the numbers work and was almost too simple so I feel like it can't be this easy. Any advice would be appreciated. Thank you!

[Pierre Guirguis]

You’re basically going all-in on your first deal. You’re borrowing the down payment. You’re thin on cash flow. And it’s mixed-use.

$225/month on a $500k building is nothing. That disappears fast with one repair, one tenant issue, or one month of retail vacancy dragging out. Retail vacancy is not the same as filling an apartment. It can sit. And sometimes you have to give concessions or build-out money to get someone in.

Also, you’re planning to:

• Self-manage
• Do light rehab
• Work full time
• Pay down a HELOC aggressively

That’s a lot of moving parts for someone two months into analyzing deals. The deal might work long term. But it doesn’t have much margin for error.

Ask yourself this honestly: If the storefront sits empty for a year and one apartment needs $10k in work, do you feel calm or stressed?

If that thought makes you tight, it’s probably too thin for a first deal. First deals should have ample breathing room.