I'm looking at a mixed use commercial/residential property with some attractive numbers, but I'd like some outside perspective. It's an ugly building but is in a great location and has solid rental income.
Asking price: $699,000.
1. The property currently has 2 legal rental units ($1000 and $850) both with long-term tenants,and one unrented unpermitted unit. My assumptions ignore the illegal suite.
2. There are 26 storage units (all rented at right now) with rents totaling $2680/month. The units vary from $.84/sf to $3/sf because the current owner has negotiated rents individually over the years.
3. Also 10 artist/office suites (between 120 and 250 sf each) renting for a total of $2680/month. Again, units were individually negotiated so rates range from $1/sf to $2.35/sf.
Total rent is currently $6120/month, with 3 office and storage units currently in use by the owner (which would add another $800 if rented). Bringing the illegal suite up to code would add another ~$1000 to the rent as well.
After purchase costs, property transfer tax and upgrades I`m estimating the total cost to be $730,000, with a cash downpayment of $183,000. Monthly mortgage on a 20 year term (which is the max available here) would be $4500, and operating costs (including utilities, property tax, vacancy estimates, maintenance, insurance etc) of $1265 - so total monthly costs are $5765, leaving a paper thin cash ROI of about $350/month.
Opportunity - most of the units are rented at below market rate and have room to go up as people transition in and out. Conservatively, I see an increase of about 5%/year for the first 10 years. Also, upgrading the unrented illegal suite would add $1K to the monthly rent, which could happen fairly quickly as it is empty now. I've attached my spreadsheet, but I'd appreciate some input from anyone with more experience in commercial real estate.
At present:
Cost/Bldg $728,678.41
Capitalization Rate 9.18%
GRM (Gross Rent Multiplier) 8.80
Cash ROI 5.63%
Total ROI (incl Equity) 25.99%
DSCR (Debt service coverage ratio) 119.01%
Annual Cash Flow $10,253.60
Comments?