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

Question

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!

Alex Morales · Answer

Congrats on doing your homework and running the numbers before jumping in. A few thoughts on your deal.

First, your current cash flow of $225/mo with one vacant storefront is pretty thin but not unusual for a mixed-use first deal, especially in the Hudson Valley where prices are elevated. The upside to $975/mo once you fill that vacancy and bump rents is what makes this interesting.

A few things to stress test: What's the realistic timeline to fill that retail space? Commercial vacancies in smaller villages can take 6-12 months, and in a Main St location you want a tenant that draws foot traffic, not just fills the space. Budget for extended vacancy on the commercial side. Also, your 8% PM allocation is reasonable if you're self-managing, but make sure you're also accounting for your time - especially with a mixed-use property where you'll be dealing with both residential and commercial leases, different tenant types, and potentially different maintenance requirements.

On the HELOC-as-down-payment strategy: it works, but understand your real cost of capital. If the HELOC is at 8-9% and you're only cash flowing $225/mo, you're basically breaking even until you get that vacancy filled and rents raised. Run the numbers with the full HELOC interest factored in.

The "turn the office into a bedroom" value-add sounds good in theory, but check Hudson Valley zoning and building codes first. Converting a 1BR to 2BR often requires permits, egress windows, potentially separate HVAC - costs add up fast.

All that said, the fundamentals of buying a mostly-stabilized mixed-use on Main St in a Hudson Valley village are solid. Location matters, and Main St retail in villages that are attracting NYC transplants is seeing renewed interest.

What village is this in? That might help dial in the rent potential.