Flipper/Rehabber · Sacramento, CA · Member since 2016 · 807 posts · 815 votes
Hi everyone,
I've been saving up funds to make my first multifamily purchase soon, so I've been doing a lot of research about underwriting and different markets around the country. I came across this listing in St.Petersburg, FL that has me a bit confused. I would really appreciate it if you could take a look at it and let me know if I'm missing something. Here is the OM: 2nd St Suites
The OM is saying they are selling at a 10.26% Cap with a CoC ROI of 26%. I know ROI will depend on how much you're putting down, but this cap rate seems oddly high given that cap rates in that area seem be around 6-8%. Is there something about this property that makes it undesirable? It's very old, but was renovated in 2014. Vacancy is low at 5%. It has 11 studio units at 200sqft which I think is tiny, but apparently they are renting well. So what am I missing!?
Investor · Stratford, CT · Member since 2015 · 258 posts · 230 votes
7y
If 11/19 units have no private bath, then this is a rooming house, not a MF apartment house. Much more management intensive. Lower quality/higher risk tenants.
Investor · Indianapolis, IN · Member since 2019 · 62 posts · 64 votes
7y
@Pratik P. I don’t seen anything that immediately sticks out on that OM, but you are right to be concerned. Why would anyone sell almost half of what the property is worth? Just keep both eyes open for what they are not telling you as you get into it.
Real Estate Agent · Winter haven, FL · Member since 2011 · 572 posts · 336 votes
7y
There is nothing wrong with the propery. It just appears to be rented out by the room and not a true 19 unit biulding so that will turn many investors off.
Investor · Stratford, CT · Member since 2015 · 258 posts · 230 votes
7y
If 11/19 units have no private bath, then this is a rooming house, not a MF apartment house. Much more management intensive. Lower quality/higher risk tenants.
Investor · Stratford, CT · Member since 2015 · 258 posts · 230 votes
7y
The op expense is 40%. My guess is it doesn’t include professional management which will be required for an out of state investor. Is there a local management company who can/will handle this type of property?
Flipper/Rehabber · Sacramento, CA · Member since 2016 · 807 posts · 815 votes
7y
@Manny Cirino@Ed Matson I completely overlooked the fact that it's not a true 19 unit and that it's rented by rooms!! I was wondering how there could be 200sqft studios lol. Definitely a turn off for me... Thank you for catching that! It does look like they included management fees in the operating expenses but not sure if it's a professional management company.
@Todd Dexheimer Looks like repairs and maintenance is 4.5% of the income. What do you think is a more realistic figure? Same with contract services.
$1000+/unit ($19,000+) for R&M and unit turns. Contract services should be double. Management will cost around 6-8%, plus you will have leasing fees and renewal fees, so add in another 2%.
Lender · NY / FL · Member since 2013 · 240 posts · 44 votes
7y
I’ve seen some other properties like that in St Pete, and I think those numbers were a little optimistic as well.
Like other mentioned here that’s not a true multifamily but a boarding house, so your tenant base would be that demographic.
Also these older properties in St Pete cost more to run and insure, along with deferred maintenance being common on some larger items like sewer lines.
Agent / Investor · Clearwater, FL · Member since 2014 · 573 posts · 281 votes
7y
That’s a great area so you might be better off changing that layout inside to a bunch of 1/1s. The property appraiser shows 24 fixtures so you should be able to convert it to 8 units. It is currently zoned as a 5-9 unit apartment so maybe at some point it was that?
That’s a great area so you might be better off changing that layout inside to a bunch of 1/1s. The property appraiser shows 24 fixtures so you should be able to convert it to 8 units. It is currently zoned as a 5-9 unit apartment so maybe at some point it was that?
That would probably be the best way to go to minimize management cost/effort. What do you mean by 24 fixtures?
Agent / Investor · Clearwater, FL · Member since 2014 · 573 posts · 281 votes
7y
@Pratik P. - Pinellas County shows the number of fixtures on the house but not bedrooms, so you can tell how many bathrooms a house has from the property appraiser. A full bath has 3 fixtures, a toilet, a sink, and a shower/tub, and a half bath only has 2 fixtures, toilet and sink. So if the property appraiser shows 6 fixtures you can assume the house has 2 full baths, whereas 5 fixtures would be 1.5 baths.
@Pratik P. - Pinellas County shows the number of fixtures on the house but not bedrooms, so you can tell how many bathrooms a house has from the property appraiser. A full bath has 3 fixtures, a toilet, a sink, and a shower/tub, and a half bath only has 2 fixtures, toilet and sink. So if the property appraiser shows 6 fixtures you can assume the house has 2 full baths, whereas 5 fixtures would be 1.5 baths.