9 Unit Apartment Analysis

Multi-Family and Apartment Investing
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9 Unit Apartment Analysis

Daniel Miller
St. Petersburg, FL · Member since 2012 · 173 posts · 44 votes

I am looking to make an offer on a 9 unit in my farm area and I need a little bit of advice. It is in a B- part of town that is quickly transforming into a sold B and potentially a B+ in the future.

The asking price is $560,000. It seems way to high and I am going to make an offer based on an 8.5% Cap Rate. Apartments are very competitive where I live.

These are the Operating Expenses she gave me:

Potential Gross Income: $69,540 - 10% Vac Loss = $62,586

RE Taxes $6,587

Insurance $6,087

Maint and Repairs $1,800

Utilities $5,160

NET OPERATING INCOME $42,952

Obviously, these are way off and she does not operate the property with only these expenses. I have seen a Jamaican gentleman running some different properties for her. His pay was not included in the operating expenses.

These are my adjusted operating expenses.

Potential Gross Income: $69,540 - 10% Vac Loss = $62,586

Operating Expenses: $29,774.82

- RE Taxes $6,587.52

- Insurance $6,087

- Utilities $5,160

- Maint & Repairs $5,850

- Replacement Res. $1,800

- Mgmt. Fee $4,381.02

NET OPERATING INCOME $32,720.46

Cap Rate at Purchase Price - 5.84%

I am planning on making an offer of $384,946.58. The property has been listed since May and does not have any solid offers. She is willing to hold the mortgage if I put down 25%. If I get the property for $420,000 (roughly an 8% cap rate) and after the closing the total comes to approximately $432,600, than I will have a monthly payment of approximately $2,100. The annual debt service would come out to $25,200. Cash Flows before taxes comes to roughly $7,500.

I have to borrow the down payment from my parents. They are cool with it but they want 7.5% and will treat it like an equity line that resets monthly. The management fee will be my compensation. I am a property manager for a prominent family in the area and have two years of experience managing another 9 unit property.

I believe I can get the Potential Gross Rents up to $76,000 relatively quickly and also will install two washers and dryers and will rent out the three empty garage spaces. (I might frame in the garage spaces and rent them out as storage units) Either way there is equity in the property that is not being tapped.

The utilities are high. Electric is separately metered, water is not. The 9 unit I am at averages $3,600 annually in utilities.

Also, the insurance looks high as well. I will get that reassessed and will hopefully find a cheaper rate.

Any criticism will be appreciated! Thanks

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Patrick L.
Real Estate Investor · Saint Petersburg, FL · Member since 2013 · 1k+ posts · 951 votes
12y

@Daniel Miller I didn't bid on the one on 15th but I know the property, it's about 2 blocks from my 5 unit in that neighborhood and painted a pretty similar color. I haven't been to Green Bench yet, my wife and I thought about going over there a couple weeks ago when they first opened and we had a babysitter but we didn't make it. I'm a big Cigar City fan so I'd like to go check it out.
@George Paiva


@George Paiva

@George Paiva I'm not sure on Clearwater and Tampa, I know Tampa requires rental licenses even on single family but I'm not sure if they go as far as to kill your zoning like St Pete has. In the city of St Petersburg (a property may have a St Pete address but may fall under Pinellas County's rules if it's outside of city limits) you need a business tax license for any property with more than one living unit.

The license is extremely cheap ($4/unit/year) but if you let it lapse for a day over 2 years you cannot get it back without starting from scratch on your zoning. If you have questionable units that were grandfathered in they can remain as long as the license is kept current and once you lose it then all hell breaks lose. The problem with distressed properties is the foreclosure generally takes more than 2 years in FL and the owners always stop paying the business license as soon as they stop paying their mortgage. I've only come across one REO multifamily that still had time left in the 2 years and that was the 5 unit I have in the neighborhood Daniel was talking about. I wouldn't have touched it if the license wasn't able to be brought back current because it has almost no off street parking and the 1 bedroom units are below the minimum size. I've seen the city force people to tear down a garage/garage apartment to bring the off steet parking up to zoning standards.

The first step will be for the building department to determine if the units were legally constructed with permits through a property card interpretation ($60). If they were you can move on to the next step, if they weren't then you are now obligated to remove any illegal units prior to doing anything with the property. If they were legally constructed you can file an application for reinstatement ($500).

That application is 11 pages long plus you need site plan drawings and floor plan drawings of every unit. You will have to submit landscaping plans, work plans, financial statements, neighbor signatures, and a letter from the neighborhood association. Your units must meet the current minimum requirements for zoning based on size and parking. 1 bedroom units must be at least 500 sqft, 2 bedroom units 750 sqft and you need 200 additional sqft for each extra bedroom. You'll need off street parking at a minimum of 1 space per unit if you're dealing with 1 bedrooms but you may need as much as 1.5-2 space per unit for larger ones.

You'll have to go to a public hearing and plead your case for your units to be restored. If approved they'll give you a list of things they want you to do to the property as a condition of approval. After that and an inspection by the zoning department, the fire department, and code enforcement you can apply for a new certificate of use ($100+) and then pay your business tax license ($4/unit). You can then take all of that paperwork to both zoning and codes and they will give you the Ok to rent your units. It may be 3 months later at this point.

That process applies even if the property was originally constructed exactly as it sits now, which is the case of the 2 properties I've done this year. It's the most insane thing I've ever dealt with and it's the reason most of my properties in St Pete are single family homes because none of this applies to those.

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  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    12y

    A 9 unit property I am sure would require a commercial loan. A commercial loan is not fixed rated for 30 years but probably 25% down, a higher rate then 5% with no credit, and adjustable periodically. If you want to confirm you can ask a bank. Owner financing fixed at 5% for 20 years would be good and maybe you can play a little with that to get it to work for you. Lower down payment with a ballon at some point.

    At 70 years old maybe you need to consider what happens to the loan if something happens to her. Make sure that is covered legally. Good luck.

    1Reply
  • Daniel Miller
    OP
    St. Petersburg, FL · Member since 2012 · 173 posts · 44 votes
    12y

    @Colleen F.

    My parents asked me the same thing...how would the be set-up. I do want to make sure that end is covered if something potentially happens to her.

    My idea was to get the 9 unit under contract and have her hold the mortgage. On the four unit I would try to get my parents to co-sign a conventional mortgage.

    Waiting to hear back from the bank...

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  • Colleen F.Pro Member
    Investor · Narragansett, RI · Member since 2013 · 8k+ posts · 4k+ votes
    12y

    Typically anything she owns goes into the estate. How it is handled depends on the state you live in and whether she has a will. I would say this needs to be covered in the note and you certainly need a lawyer to review. You might get more advice on what to address in the paperwork for the note if you post specifically a question on the note terms in the lending section of BP. They might not see to answer here. In the end you need legal advice but it doesn't hurt to get a better understanding of the issues before you start paying by the 7 minute increment!

    1Reply
  • William Whiteley
    Mojave, CA · Member since 2014 · 5 posts · 0 votes
    12y

    Dan what I have read from other season investors is never go by proforma numbers but actual numbers. Your offer should be based on NOI / Cap Rate = Value of property. If you have a letter of intent on the property you can request for 2-3 years Profit and Loss statement (trend report) and a current rent roll to work your numbers. If its a B property use 8-9% cap rate. remember to keep a strike price in mind. Try to get financing but you negotiate with seller financing for your down payment.

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  • Daniel Miller
    OP
    St. Petersburg, FL · Member since 2012 · 173 posts · 44 votes
    12y

    Its never been on the MLS. It was an off the market deal. I never did make the offer the seller changed her mind. $230,000 wouldn't get a return phone call even if the listing agent was a relative. The Downtown St. Petersburg rental market is really hot. You cannoy buy for less than $55,000 - $60,000 a unit. Units in the Old Northeast are going for $100,000+ a door. Rents are all $1.25 - $1.50 a square foot for existing buildings and new construction is getting $2 a square foot! Retail space on major corridors are up over $35 a square foot annually. There are no more deals here for the time being. Cash talks and cap rates on all properties (industrial, multi-family, office) have all been pushed to below 6%. It's definitely a seller's market. I low ball everything...that's just the way I am. I haven't made an offer on anything in six months...prices are out of control over here. There was a 9 unit apartment building near the water in DT St Petersburg that recently sold for a 4% Cap Rate. $925,000 for 9 units and the building is approximately 7,000 square feet. This was an old article but I thought I'd give an update...

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