Hey everyone - I am in a position that I am starting to actively look for a multi unit building and had a few beginner questions.
A unit that I viewed is 2.8M ask and the cap rate is 5.1%. The NOI is 140K and I just found out that NOI doesn't include debt servicing costs (newbie here remember). A commercial mortgage looks to be about 4-4.5% with about 30% down. A 4% that comes out to be about $10.5K a month in payments.
So my question is how the heck can anyone buy this and make money? With debt servicing costs of 10K a month, that eats up basically ALL of your profits. You might be left with 20K at the end of the year - for your 800K investment.
How does this make any sense financially? Why would anyone buy this? Is there something I am missing? Is the be all and end all in the rent normalization or is this just a HORRIBLE deal? The city I am looking in has a few units in around the 5% cap so it seems that it isn't just a one off.
Thanks for any basic info you can give me!
A unit that I viewed is 2.8M ask and the cap rate is 5.1%. The NOI is 140K and I just found out that NOI doesn't include debt servicing costs (newbie here remember). A commercial mortgage looks to be about 4-4.5% with about 30% down. A 4% that comes out to be about $10.5K a month in payments.
So my question is how the heck can anyone buy this and make money? With debt servicing costs of 10K a month, that eats up basically ALL of your profits. You might be left with 20K at the end of the year - for your 800K investment.
How does this make any sense financially? Why would anyone buy this? Is there something I am missing? Is the be all and end all in the rent normalization or is this just a HORRIBLE deal? The city I am looking in has a few units in around the 5% cap so it seems that it isn't just a one off.
Thanks for any basic info you can give me!