Triplex in Saint Paul — help me stress-test the underwrite

[Georg Weber]

Got pulled into helping a friend evaluate an 1888-vintage triplex in Saint Paul (Payne-Phalen, asking $299K). The numbers screen well at first glance:

• 3 units — two 2BR/1BA + one 1BR/1BA, 2,555 sq ft total, $99,667 / door

• Two of three units leased through 02/2027 (2BR at $1,165, 1BR at $945)

• Vacant 2BR indicated at $1,165, but local 55106 comps on Apartments.com show 2BRs listing to $1,400+

• Stabilized: 6.57% cap (50% rule), 4.74% cap (line-item), 1.10% rule

• Mark-to-market case: cap to 7.52% / 6.10%, 1.25% rule

Where I'm uncertain:

1. The 50% rule and the line-item underwrite are 183 bps apart on day-1 cap (6.57% vs 4.74%). For a ~140-year-old MN triplex with landlord-paid gas heat, where does the truth realistically live?

2. DSCR at 25% down / 7% / 30-yr is 1.10× on the 50% rule but 0.79× on the strict line-item. Mark-to-market closes the gap to 1.02× detailed. Would you require something tighter than 1.0× to move forward day-1?

3. Anyone done capex on small multifamily this old in MN? The pro-forma reserves 10% of GSR for capex, but if the boiler or roof has years left I'd want to know what to budget concretely.

Full writeup with the line-item pro-forma, two-scenario rent roll, and financing scenarios is here: https://hyperagent.com/api/published/5EV0NR7RrB23BYBLkH5EPA/...

Honest takes welcome — especially from anyone operating in St. Paul.

[Bryon Andrews]

Hi @Georg Weber I am a local investor and agent in the St. Paul and Minneapolis area. I actually live 10 minutes away from the property that you are underwriting and just sold a duplex less than a mile from here. There are a few specific things that you will want to think about when it comes to this property. East St. Paul can be a fantastic location to own rentals for cashflow. However, it will take some work and will not be passive. Based on my local knowledge, I see the management company that currently operates the triplex, makes me assume that you may have some issues day 1 upon taking over the property. 

I have not walked this particular property, however, I own a number of multifamily buildings in Stillwater, MN that were built in the 1800s and I can almost guarantee that there will be differed maintenance that you will have to look at sooner rather than later. In my experience, once you stabilize the building and make sure everything is up to date, these old buildings will have a handful of annoying repairs each year, but not the end of the world. 

As always, on a triplex like this, tenant screening and getting ahead of cap-ex items will be very important. Also, do not forget that St. Paul has rent control as this may affect your investing strategy with the building. If you want to chat more in depth, feel free to reach out. Best of luck!