8 Unit In Brooklyn
I am a newbie to muli-unit apartment blds---NEED HELP.
8 unit in Brooklyn. purchase price $540k. $730/ unit. $3100 in taxes.
Is there a calculation or formula that I can use to determine if a multi unit is a good investment??
Also, is there a certain amount of units in a bldg to be considered "commercial" (another words, what classifies a multi-unit as "commercial" -vs- residential??
thanks in advance
Most buildings with 5 or more units are classified as commercial. When assessing a property I take the gross rent and then deduct 40% for vacancies,taxes,insurance and maintenance. If it will still give a positive cash flow after also deducting debt service I give the deal serious consideration. If not I pass and go to the next property.
Take the annual gross income and subtract all expenses(taxes,utilities, 5% vacancy, maintenance,etc.). Do not subtract depreciation. Now divide this number by the asking price. You have now found the CAP rate. Compare the CAP rate to the prevailing CAP rates in your area. If it is a higher CAP rate then it is a good deal. Most CAP rates are between 8-12% which is a very large range. You will usually find 8% for office buildings with very good tenants, 8-10% for large apartment buildings, 10% for smaller buildings, and 12% for even smaller properties. The CAP rate will also vary with location and condition of property.
For many investors this is not enough. They are looking for much higher CAP rates because they only purchase properties for less than full market value.
More than 4 units is considered commercial.
I would suggest you read up on calculating whether a commercial proeprty is a good investment/price before you begin to make offers and go through transactions.
-AE