I've been fortunate enough to have accumulated a nice actionable amount of equity and I'm raking my brain on how to best leverage it.
I'm running SFR models against 1 or 2 more consolidated investments in Multi Family Commercial. And the figures seem to be leaning heavily towards the SFR model. I must be missing something.
Considering commercial cap rates don't account for financing. Once you add financing into the mix your cash on cash returns are FAR lower than SFR. Even if I buy commercial at a lower cap rate (lets say 6%) and raise the value in repairs, rent increases and fat cutting to lets say 8.5%, my final cash on cash returns are still lower than a average to good SFR deal.
I ran a models on $4mil value with financing.
SFR, at 20% down 30 years at %5.5 - 1% value to rent and conservative operating costs. I'm looking at a cash on cash return of around %8+
Multi Family commercial at 25% down 20 year amortization with a 7 year balloon - Cap of %8.9 , I'm looking at a cash on cash of about 5%.
I know finding 1% rent to value SFR deals at a financed value of 4mil would take quite some time (in today's market, maybe not in 2-3 years) while a commercial property can potentially be aligned faster. But as an over all strategy commercial doesn't seem to make financial sense.
What am I missing?