I’m realizing it’s all DSCR (Debt Service Coverage Ratio). No such thing as residential 2-4 units valued by market comps vs by cap rate for commercial 5+ units.
For example, with a 10-unit BRRRR partially occupied 4 units and 6 needing renovations: Each unit rents for $600/m+ x 10 units x 12 months, x .6 margin (being generous, likely lower) after 10% Mgmt fee, 10% repairs, no vacancy, 10% taxes, 10% insurance= NOI $43k/yr divided by 0.08 (modest 8% Cap Rate) is $540k valuation. I always wonder who buys at 4% cap rate for it to be worth $1m with multi-family when you can get that with high-yield savings.
Forced Appreciation and all, who’s going to carry the bag, if your Cap Rate is lower than Interest rates, who will buy at 4% to hold long-term, that doesn’t service the Cash-out Refinance loan, DSCR < 1, mortgage more than rent, at the current 8%+ Interest rates.
Currently 4-units occupied generates $2.5k/m, with 10-12%+ interest-only/bridge-loan on 550k+ private money lenders for 400k purchase and 150k+ rehab, is already $5k/m.
You’re negative Cash-flow during the rehab, and you have nobody sensible that will purchase below 8% cap rate with an ARV (After-Repair-Value) of just $540-550k, no net cash-out from forced appreciation to rinse & repeat.
BRRRR with $1m ARV even with $750k Cash-out 75% LTV payoff the PML (private-money-lender), pocket $200k (haven’t seen liquidity or down payment requirements yet for buy + rehab, since I purchased 25% down with my fourplex and used hard money bridge loan several years later with natural appreciation to pay that off) you’re breaking even with just rent paying the mortgage, no Cash-flow, not good, can’t sell.
Why the hype with commercial multi-family apartment buildings, as it doesn’t really make sense. Maybe I’m missing something.