Is a first commercial deal better at 6 units or stretched to 14 when the per unit economics and the nerves disagree
A scenario worth working through. A buyer has enough down payment for a 6-unit comfortably, or a 14-unit if they bring in one partner and keep almost nothing in reserve beyond the required escrows. The 6-unit is theirs alone, the mistakes are cheap, and one lost tenant is one sixth of the rent roll. The problem is that it cannot carry professional management. At 6 units and $900 rents, a management fee eats most of what is left after debt service, so the owner ends up self-managing while learning commercial operations for the first time. The 14-unit spreads fixed costs over more doors. A manager, a landscaper and a real accounting setup all become affordable per unit. One vacancy is 7 percent of income instead of 17. But it means a partner and a bigger loan, with every operational thing the owner does not know yet happening at more than twice the scale. This tier rewards operators who think like operators, and the 14 forces that faster. It also punishes them faster. For a first commercial deal, does the scale that makes the numbers work outweigh starting somewhere the mistakes are survivable?
First commercial deal
25 votes