Your Input on this 4 Unit Multifamily in Baltimore

[Alexander Biniam]

Hi, my name is Alexander and I invest in Washington DC and Richmond on SFH units (buying rentals). I recently have shifted my focus to Baltimore focusing on small multifamily units (under 5). Below is a potential "live" deal and I wanted to get advice since several factors are in play to come to a fair offer (including bring rents to market value and adding a new unit).

a. Location Info: Charles Village near Safeway and CVS.

b. Property Info: 3 unit multi-family zoned "B23 Community Business" (i.e., mixed commercial and residential). All 3 units are currently rented out. All units have individual metering minus water. The basement unit is not individually metered (yet).

c. Unit Info: 

- Unit #1: Commerical space currently renting for $750 but should be renting closer to $1000. The unit is a studio layout. The unit is in good condition. Requires minimal work to uprent out.

- Unit #2: 1 bedroom / 1 bathroom. The unit is in decent condition but will need cosmetic uplift (e.g, paint, new kitchen tile, etc) to bring in a top price of $950 monthly. 

- Unit #3: Studio loft currently rented for $825 but after cleaning up and upgrading kitchen should be renting for $1000.

- Unit #4: Basement unit is "technically" a unit meaning it has own entrance (back and front), separate bedroom and bathroom, kitchen and 2 egress windows. Hope in the future is to renovate (est $8k - 10k) to clean up finish bathroom, kitchen and pave backyard for 1 parking space. Estimated rental would be $850. 

#1 Question: The current NOI/Purchase Price is 4.9 CAP (I know horrible). Is this typical for multifamily in Baltimore? My research shows it really should be in between 6 -7. What is a good CAP rate for the Charles Village area?

#2 Question: How hard or easy is it to re-zone a 3 unit to a 4 unit?

#3 Question: My plan is to invest $24K to raise the current annual gross rent from $29,100 to $46,200. Normally, I would offer a "fair" value price base on what it cashflows now but with all of the outbidding going on in Charles Village, I thought the CAP rate would be fine since I would be raising the value over time (long-term investor) by increasing the NOI.

Please let me know what you think, especially those from the Baltimore area. I have combed through many deals and this is one where I see the value play for this changing area -- but before I make a mistake please share your thoughts.

P.S. I would not normally ask a question like this but with JMU and other developments going on, Charles Village seems a good spot to surf the gentrification wave but I wanted to hear from others who have experience with Baltimore to get a "gut" check perspective moment.

[David Fernandez]

Originally posted by @Alexander Biniam:

Hi @David Fernandez,

Thanks for the reply. I hope to build my portfolio up to the 50 unit level.

1. In an attempt to be private, I may have not given you enough location info but the off-market is between 24 and 25th street, across the street from the Safeway making it a good location.

Based on your loan structure and profit requirements ($300 per door) then most market sales wouldn’t work for you unless it needs major rehab.

From my numbers, I would be cash flowing $100 per door and my Cash on Cash ROI would be 9.49%. Not great but I normally target 13% so maybe I have answered my own question.

2. Glad it worked out for you on the additional unit. How many weeks or months did it take to get it approved?

Can you please email me the contact that does this for a living? Would love to call your contact this week to determine my next move.

3. Very wise words that you can’t pay with present money for future (to-be)value.

I understand not giving the exact address, no worries. I can't tell you if it is a good or bad deal because we don't have all the data (expenses). Some people forget some items when analyzing deals, just make sure you include everything: utilities you will be paying, vacancy, maintenance, capex, license fees, property management fees, insurance, taxes (do not use current taxes, use the taxes that you will be paying after purchase ~ Purchase Price x 0.0236), etc. Make sure you include all expenses in your analysis and you should be able to see if it works for you, or not, at current purchase price.

I mentioned location as I just wanted to reinforced the importance of the location in Baltimore City. This property seems to be located, technically, in Old Goucher, not Charles Village. 25th St separates both neighborhoods, which are quite different the farther away you get from 25th. I do not own any deals in these areas, so I cant't tell you exactly how being above or below 25th can affect the types of tenants and rents you can get (above 25th is better), but obviously, be a little more cautious with your income assumptions and try to get comps below 25th st.

With your numbers, will you be cash flowing $100/door with 3 or 4 units? If it is only with 3 units, adding the 4th can be a big plus for you. I will DM you the contact information of the person who helped me re-zoning my 6 unit to 7 units. It took me 2 months to get it approved. The process is not long. You basically need to submit your application, hang a sign outside your building at least 21 days before the hearing, and then attend the hearing. You are approved/rejected the same day. It can take more or less time depending on when the next hearing is held. 

Good luck!