Purchase for a 4 unit in Baltimore City

11 Replies

Hi Fellow Big Pocketer's,

I am looking at a 4 unit in Baltimore city around John Hopkins area. Selling for about $230K range. Truthfully he will let us assume the current mortgage of $230K about $1500 per month. In the end it is a sale for $230K, we might bargain with him a bit, tops off would be 20K.

Sounds great. So here is the catch the building is 75% vacant. Plus it is so old it does not have separate meters for electricity. So basically we need to do over each unit. It could take up to $40K per unit to do them over nicely . So we would be all in for $350 about 88K per unit. We are looking to get 1K per month per unit. It will pass the 1% rule per unit.

Does anybody think this price after all expenses is to high ?

Also to keep costs down we want to avoid running gas lines to each unit and install heat pumps.

Is electric heat pump not base board except able to tenants in that area ?

Would a electric heat pump stand up to a Baltimore winter ?

Any information or advice would be extremely helpful. Thanks in advance to everybody.

@Alexander Spira without knowing where the property is, that number seems really high. Everyone says "Johns Hopkins area", but the Johns Hopkins area can mean both really nice or total warzone depending on the block.

The 1% rule is relative, in Baltimore I would expect closer to 1.5% or 2% depending on the area and corresponding level of risk. As an example, many of the single families we look at are around 2%. Granted, those are lower income or Section 8 units so they are a bit higher.

Have you visited the property to see the block?

Hi @Alexander Spira , as Brad said, JH is too broad of a term to know whether the property is located in a A area or a war zone and to know whether $230k is either too much or a good price. 

As for the deal, there’s is something I didn’t understand. You are purchasing it for $230k and you are assuming the current mortgage of $230k; however, you are trying to negotiate a $20k price reduction. If the Seller agrees to reduce the price to $210k, this will be a short sale and the bank may have a say or two about it. 

Finally, check out your rehab numbers. We put new cabinets, granite, stainless, redo bathrooms, knock down walls, new flooring, and paint in some of our unit turnovers. They look like a brand new apartment and, on a total unit rehab, we don’t spend more than $10-$12k. These are really nice rehabs, we spend a lot less when we don’t do a total rehab. $40k/Unit is a lot money, you can almost gut an entire house and redo it completely in Baltimore city. If you are running into such high number due yo wanted to have self contained units, maybe you should look into billing back your tenants for utilities. 

I would advise against a heat pump in this area, they really just don't perform well in temps below 40-35 degrees. 

@Nathan McQueen thanks for the advice I am definitely going with regular furnaces 

Thanks for all the good tips @David Fernandez and @Brad Cogswell. The property is in Old Goucher and Charles Ville area. I just visited it yesterday. The area is nice, close to Remington. My partner thinks that there will be appreciation. Lots of new stores have opened up close by. Bottom line it's in a decent area. 

As for billing tenants back. The building has base board electric heat, it's terrible. If we want good tenants we need to offer a nice apartment. We must upgrade. The actual rehab per apartment is 5 to 7k. I was surprised it is in decent condition. The big expense is metering for gas and electric which will be 13k. If we buy for 230 plus worst case scenario 100k rehab costs total 330k all in. NOI 38k gives me a cap rate of 12%. The numbers make sense but it's a large job honestly I am a bit nervous.

 Any thoughts?

Hey @Alexander Spira , I would take a look at your analysis, the expenses seem low with roughly 20% ($10k) expenses on $48k of gross income.

Imo this doesn't sound good for baltimore city. Most investors I know personally who are in the city look for 15% to 20% caps because of turnover, lead issues, lawsuits, court, utility court, ect. 

Just a though on my part in that area.

 @Brad Cogswell sorry for the late reply. Full time job, family and real estate can get person busy.

Yes the expenses  are on the low end. Part of the deal is that my partner will be doing all the leasing and management which definitely cuts the costs. I will review my annual costs to double check. Thank you very much.

@Thorney Gibson your concerns are valid for "turnover, lead issues, lawsuits, court, utility court". I still remember finding out about this "Lead Certification for Maryland State" a real pain and costly but it keeps people safe we hope . 

Our whole strategy is to go for the B+ A- group by making a nice apartment in this area that is changing over. We hope not to bring in those kinda of tenants that bring those concerns. 

For the general Baltimore city market that is a valid point. Thanks so much for the comment and sorry for the long over due reply back.

@Stephen Lee you are correct. I dropped the deal. The property is down town and we were looking at appreciation. Bottom line I would have to put in all this money and work, to get a average return. I might as well just buy a turn key same price and no stress. I am very happy with my conclusion. Sometimes the best deals are the ones you never do. Thanks for reaching out. 

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