5 Units
I'm ready to move onto a multiunit now. I looked at one earlier in the spring & I'm going back to that one and another that are both 5 units and the one also has a warehouse that needs work. The mortgage and the insurance aren't a problem as I've got those approved. what other advantages/disadvantages are there to this? Why are these supposedly harder to sell? the ROI is SOOOOO much greater than the 2 and 3 units. my goal is holding the properties for minimum 15 years.
In my experience, I've never been able to make the numbers work on a 5 unit property. And they barely work on a 6 unit. 4 units is still residential property. You can get a nice 30 yr fixed rate mortgage and hold it for 15 or however many years you want. 5 units or more are considered commercial properties. The interest rate on them is sometimes less than for a residential property, but you're not going to find a mortgage for 30 yrs. Most commercial mortgages are for 10 or 15 yrs, with a 20 or 25 yr amortization. So 10 or 15 yrs down the road, you either need to come up with a huge ballon, refi, or sell the property. Also, it tends to be much easier to get a residential mortgage than a commercial one. Especially for a small commercial property. Commercial loans are handled by the business banking department, and they tend to shy away from small commercial properties as not being "worth their time." My view is that commercial properties become interesting around 8 or so units. I guess 5 unit properties can be profitable and a good deal overall, but I've never found one.
Well I sorta agree with Alexlev and sorta not.
I've never found small numbers of units that made any sense from a cash-flow point of view (not that I work that market all that hard). As you point out the ROI on a 5 unit is much better in part because of the points Alex makes-- its harder to get financing, therefore there are fewer amatures chasing the deals therefore the cap rates make sense. You will find that this process continues and improves as you get above 10 units or so up till you get to 100 units in a complex at which point the true professionals with deep pockets can afford to run them and it gets hard to find bargains again.
If you're planning to hold and manage for 15 years what do you care if its slightly harder to sell? Priced right these units move just fine.
thanks guys. I don't really care about it being harder to sell it's just that seems to come up as a disadvantage - just mumbling with the keyboard over here. I'm not financially ready or practically/experienced enough for the bigger properties you're talking about.
so, unless someone else comes up with something I'm missing, I'll wait for the tax returns and city inspection reports I've requested and make an offer.
thanks again.