feedback wanted on multifamily property....
Success story with advice and feedback wanted.....
Hi all bigger pocket members! Although I have not posted much I’ve been watching everyone post great advice for just over a year now. All the stories of winners and losers has been invaluable in shaping my investor mindset. I have been in the real estate business since 2003 with licenses in Michigan and Florida but have only recently gotten involved with a new business plan of real estate investing with a focus on rentals. So far my business partner and I have accumulated 25 units consisting of mostly SFR and a few multifamily including 2 triplexes and a fourplex. Most all are rented with government agency subsidized rents such as Section 8, as all bills paid units. Our most recent purchase included a package deal for 3 SFR, all 2 bedrooms and a fourplex for a total of $66,600 for the package. All in Flint Michigan. Before anyone jumps 3 feet backwards it is not our first Flint purchase so I am aware of some of the downsides to being in this area. All needed extensive renovations but did have some positive features such as newer roofs, furnaces, and solid structural integrity. Over the last 2 months we have renovated all three SFRs and turned two of them into 3 bedrooms by converting dining rooms into bedrooms. The 2 bedroom is now rented for just under $800 and both 3 bedrooms for just over $1000, all bills paid. Once fully rented the 4 buildings will gross between $6400-$7000/mo. This is for all bills paid. After paying utilities we will net $5000-$5600/mo. So far all of our low end purchases such as these have been cash. We are looking to start financing so we can increase our inventory and maximize buying power which leads into my question.
Getting to the 4 plex... And getting to my question for debate. We are still renovating all 4 units. This one needed a ton of work. We rented a 30 yard dumpster, filled it easily and could come close to filling another but have gotten by with putting most of the left over debris out to the trash little by little during renovations. Not sure the trash company likes us much but oh well. We have installed a tankless water heater so we can adequately supply all units with hot water as there was just a standard 40 gallon in place to handle the entire building prior. I’ll use the 40 gallon tank on another property eventually. Probably soon than later as I’m sure one will go bad. This also opened up space in the mechanical room that is now one of the bedrooms in a 3 bedroom unit. The 4 plex when purchased consisted of 4-1 bedroom apartments. We have creatively turned it into 2- 3 bedroom units each will rent for just over $1000, a 2 bedroom unit that has a deposit and will rent for $800. For the last unit I have a couple options.
Option 1-leave as a large 1 bedroom unit that will rent for about 600/mo all bills paid. Easiest option.
Option 2- put up a wall, a light and a door and make it a 2 bedroom unit that would fetch just under 800/mo. Downfall is this area has had very little demand for 2 bedrooms. 3s and 1s rent out much quicker. Over the last year we have experienced an extra month of marketing/ vacancy time with 2 bedroom opposed to 1s and 3s. This option would add about 1500-2000 to the current budget of the 1 bedroom.
Option 3- This one is my fav as it completely maximizes the building but has some hurdles. Split the 1 bedroom unit in half. Install an extra kitchen, bathroom, bedroom, exterior entry door, and all the items needed for another unit. This would turn the building into a 5 unit. My thoughts on the upside would be that with 5 units the building could be commercial. I’m thinking we could get a much higher appraisal to pull cash out in 6 mos to a year when it’s fully rented being that it’s commercial and based on ROI opposed to keeping it residential with 4 units and basing values off comps in the area which are lower say 80k range. With 5 units, we could take in about 4200 net a month. With 4 units the building will net about 3600. This option will probably cost about 10-12k more than option 1. Downside is I am unsure if we start changing zoning how much in upgrades will be required by the city such as electrical. The building was built in the 30s. I can see if the electrical needed to be redone and it adding 10k more to the renovations. So what I’m looking for is feedback based on these numbers what everyone’s thoughts are on these three options and what other obstacles I may encounter based on this potential upgrade to 5 units.
Thanks a ton in advance and looking forward to learning a ton from everyone.