* Inherited a 9 Unit Multi-Family in St Pete Beach, FLA* Help!

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* Inherited a 9 Unit Multi-Family in St Pete Beach, FLA* Help!

Alysa PhalenPro Member
Denver, CO · Member since 2017 · 14 posts · 8 votes

Good day,

In 2009, I inherited a 9 unit multi-family apartment complex with a pool one and a half blocks away from Upham Beach in St Pete Beach, Fla. (Photo attached). The units are all one bedrooms, almost 600sq ft except there is one efficiency at 400sq ft.  They have been excellently maintained and I have been renting them on an annual basis since 2009, slowing increasing rents.  The problem is, my property is appraised for $1,000,000 but after property taxes, all the FLA insurances (flood, hurricane, wind, etc), upkeep, I am only netting $30,000-40,000 a year, which is not much.  

I live in Denver where I think the time has passed to buy an affordable multi-unit to do a 1031 exchange, so I am just kind of lost as to what to do.  I know I can convert the apartments to condos (I have the old paperwork to do so) to make more money if I sell but I have no investment knowledge as to where to invest in real estate.  I'm also not sure if real estate market in St Pete Beach is recovering so I have reached out to a few agents to get their opinions.

Are there any real estate consultants for hire (I did contact Jeff Brown -bawldguy.com) that can guide you through a sale and guide you where to purchase new real estate or do you have any other recommendations on what you would do if you were me?  I wish I had the time to learn more on my own but I don't.  

Thanks in advance for your advice!!!

Alysa

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Michael Gunn
rockport, IN · Member since 2012 · 19 posts · 4 votes
9y

Here's what I would do If i was inherited that free and clear; I would refinance, pull all of the equality out to purchase another multi family doubling your income.  Now, don't use all cash to purchase the new multi-family. Get financing pay the 20-30% down with your refinance money, then put the rest of the refinance cash in your pocket for a rainy day or better yet buy another property with more lending and another 20-30% down (rinse and repeat). Just create more income by the leverage you can have available through the refinance and a good lender for new loans. I have a performing asset based lender if you'd like to use him to purchase more. 

Good Luck, 

Mike Gunn

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  • Nick C.
    Investor · Tampa, FL · Member since 2011 · 2k+ posts · 3k+ votes
    9y

    I don't like telling people what they should do because every situation and individual is different but since you asked ... If I were you I'd sell the 9 unit and buy SFH's further inland where the yearly expenses aren't as high. Stay out of flood zones, buy 3br/2ba block houses, your insurance costs will come down. If you can sell for appraised value, whether converting to condos or not, and reinvest the $1M, if you buy 10 houses at a 10% return you should be netting more than $100k/year if everything goes to plan, and even if it doesn't you should be able to do way better than $30 - $40k.

    1Reply
  • Taylor Brugna
    CPA · New York, NY · Member since 2016 · 203 posts · 132 votes
    9y
    Jeff Copeland may be able to help.
    0Reply
  • Bill S.Pro Member
    Moderator
    Rental Property Investor · Denver, CO · Member since 2013 · 4k+ posts · 2k+ votes
    9y

    @Alysa Phalen you are not likely to do much better in Denver for cash flow. You have lower operating costs but purchase prices would be higher for a property in good condition like what you have now. I would suggest that you decide what you are going to do with the money before you decide what to sell. Having $1M and little real estate knowledge can be a very dangerous thing. I would do lots of reading on the forums here and talk to a lot of people before selling or doing anything. Think of it this way. If you make a bad choice it could cost you $100,000 or more. Figure out if you spend 100 hours learning you just paid yourself $1,000 per hour. 

    Local experts are helpful but ultimately you have to chart your own course. Make sure you have a very good idea of where you are going and why before setting sail.

    1Reply
  • Maria Bocanegra
    Real Estate Investor · Chicago, IL · Member since 2016 · 77 posts · 18 votes
    9y
    Alysa Phalen sometimes the best action is no action at all. I agree with Bill S. - take your time to figure out what you want, your risk tolerance, study markets and find out some creative options. You could, however: - sell and 1031 in Florida, Denver or elsewhere; maybe partner up with someone? - refinance cash out and invest in Florida, Denver or elsewhere thereby avoiding all the 1031 stuff - refinance cash out and spend - refinance and improve the property - convert to condos and sell then 1031, etc - hold and do nothing except maybe increase rents I am sure there are more ideas out there but it's clear you have quite an bit of options! Take your time and decide what you want
    0Reply
  • Michael Gunn
    rockport, IN · Member since 2012 · 19 posts · 4 votes
    9y

    Here's what I would do If i was inherited that free and clear; I would refinance, pull all of the equality out to purchase another multi family doubling your income.  Now, don't use all cash to purchase the new multi-family. Get financing pay the 20-30% down with your refinance money, then put the rest of the refinance cash in your pocket for a rainy day or better yet buy another property with more lending and another 20-30% down (rinse and repeat). Just create more income by the leverage you can have available through the refinance and a good lender for new loans. I have a performing asset based lender if you'd like to use him to purchase more. 

    Good Luck, 

    Mike Gunn

    2Reply
  • Taf Reid
    Hollywood, FL · Member since 2014 · 8 posts · 2 votes
    9y

    If the cost of insurance is eating your cashflow now, then it will only get worst as the cost of insurance is going up in FL specifically for coastal properties (ie. within 5 miles from the beach)... insurance companies are filing for rate increases and flood insurance has gone up significantly since the remapping of the flood zones... you could always shop around for better rates but don't expect rates to go down significantly in the near future... 

    0Reply
  • Leslie Pappas
    Professional · San Francisco, CA · Member since 2014 · 876 posts · 301 votes
    9y

    Hi @Alysa Phalen, if you're an accredited investor who is seeking to defer your capital gains tax but doesn’t want to be a landlord anymore you might consider learning about reinvestment into DSTs (Delaware Statutory Trusts). They are hands-off, institutional grade real estate investments, and they allow you the option to diversify. You can buy into institutional grade $50-125M projects with as little as $100,000. Professionals with decades of experience and very impressive track records do all the heavy lifting for you. You get potential cash flow, tax shelter and appreciation. Loans are non-recourse. 

    0Reply
  • Alysa PhalenPro Member
    OP
    Denver, CO · Member since 2017 · 14 posts · 8 votes
    9y

    Wow, much thanks to everyone who has replied to my post, I really appreciate it!!!  Especially the advice about not selling until I know what to do with the $1 million I will make on it.  Denver is too expensive to buy now for sure.  The idea of leveraging makes total sense to me since I will have the cash, I guess Bill S. from Denver is right though, I really need to learn more about investing in real estate property.  I will start reading the posts and education materials on this website.  

    I guess I was hoping there was a special "Consultant" I could hire that would do all the research for me and guide me to where to invest but that is a little too much to hope for!  

    I am very fortunate to be in the position I am in but don't want to make any foolish decisions as to how to invest the money!

    I am so naive I didn't even think about leveraging, I didn't realize I could take a loan out for multi-family or other property secondary to my house in Denver.  Phew, a lot to learn!

    Thank you again and any other tips/suggestions/referrals are much appreciated!!!

    A-

    0Reply
  • Eric Cecere
    Rental Property Investor · Orlando, FL · Member since 2016 · 15 posts · 6 votes
    9y

    Everyone has suggested some really great options for you.

    The best thing here is that you own the property free and clear. That is the the most advatageous situation you can be in. No bank or lender will come knocking on your door to get payments. If you refinance then you will be on the hook for a monthly payment.

    For a 9 unit complex that is all one bed/one bath units that is not such a terrible net amount. I am assuming from your numbers that your rents are around $800 per month. So you are probably getting somewhere between $7K to $8K gross rents which is about $90K per year. A good rule of thumb is that expenses should be 50% of gross rents. Some complex expesnes will be more but you should always try to be less.

    I personally would do a complete evaluation of the current property. If your rents are always around market value you can only increase them so much to get more income. But perhaps some of your expenses can be adjusted in order to achieve a higher net operating income or NOI. We had a property mgmt company in place charging 10% but the renegotiated with them to 8% so we squeezed more profit out that way without doing anything.

    You basically have an extra $30K to $40K per year with little effort on your part. That is a good spot to be in.

    Since you stated you're not really familiar with real estate investing and do not know Florida markets I agree that you should get your learning on. Read forums on BP, talk to some investors ( maybe not realtors) about this situation to get more advice. Knowledge is power in this world.

    I would hate to tell someone that owns a property free and clear to go refinance. I feel that is more of a strategy when you are buying a property to rehab and sell or buy and hold (called BRRRR strategy).

    Bottom line for me would be two strategiess...sell (or 1031 exchange) his place and get into other complexes or single fam properties. Or keep this unit in your portfolio as that income can help you do much more investing in the future. That $30K can help you buy more properties and then do the BRRRR strategy. Before you know it you will have the 9 unit complex and many many more properties in your portfolio. Plus you have $1M property going towards your net worth. That is how you become wealthy and not necessarily through cash flow.

    Best of luck. Contact me if you want to discuss further. Cheers!

    0Reply
  • Zach Quick
    Investor · Bentonville, AR · Member since 2014 · 759 posts · 379 votes
    9y

    @Alysa Phalen You might check with an accountant and see what your true tax basis is if you just sell. Since you inherited it, it may not be as much as you think. I'm no expert but it would be worth a meeting to determine all your options.

    1Reply
  • Mike Nelson
    Investor · Oak Park, IL · Member since 2014 · 307 posts · 150 votes
    9y

    Are there any opportunities to increase income by raising rents, or are they rented at market?  Are there any expenses which stand out which can be decreased?  I am not familiar with hurricane insurance, but I wonder if the increases with this will be passed on to tenants by your competitors, thus enabling you to follow suit in increasing your rents in the future. With out-of-state ownership, having good management is key, so I hope your managers are competent.

    0Reply
  • Scott Weaner
    Rental Property Investor · Yardley, PA · Member since 2008 · 1k+ posts · 561 votes
    9y

    Is this an area that weekly vacation rental would be a viable option?

    0Reply
  • Michael Lee
    Investor · Coppell, TX · Member since 2008 · 2k+ posts · 646 votes
    9y

    Hello and welcome to BP!   I see your name almost everyday eith another problem So just tell it is.  Just be honest with your situation and tell us what is going on.

    0Reply
  • Charli Stevens
    Investor · Saint Louis, MO · Member since 2015 · 16 posts · 3 votes
    9y

    Lots of great ideas here! If you had an interest in the vacation rental market, you could study the AirBNB results, regulations for the area. As tenants move out, you could furnish the units for weekly/nightly rentals--either through a ST Property Manager or through an AirBNB. If you post on a different thread, someone might be able to recommend a reliable cleaning person to do your "turnovers" in that situation. The property looks lovely! Congratulations!

    0Reply
  • Jeff B.
    Buy & Hold Owner · Redlands, CA · Member since 2015 · 5k+ posts · 2k+ votes
    9y

    When listening to advice, here or professional consultant, learn to ask for an outline of both the Pros & Cons.  Anyone can paint a pretty picture for THEIR personal preference, but a true consultant also knows and fully discloses the downside too.

    EG: I'm biased on MFUs (good subject to learn diffs of SFRs vs MFUs) and as you are already into an MFU, stick with what you know.  I assume you're not ready to quit being a LL, so trading up via a 1031 is a natural (another subject to understand, how, timelines, accommodaters).

    When in doubt, DO NOTHING until you understand WHY you're making this choice.

    0Reply
  • Igor Avratiner
    Investor · Philadelphia, PA · Member since 2015 · 69 posts · 28 votes
    9y
    I would ask myself, am I passionate about being an active real estate investor? If the answer is yes: Than you are well on your way just by asking this question in the forum and receiving all of the great ideas that people have responded with. If you are passionate about this than you will figure it out, and if you do run in to some obstacles (you will) you will have the grit to hang in and find solutions. If the answer is no: Most likely the best thing is to figure out a way to sell it. You will be happier. There are a million ways to passively invest money. And if for some reason the assets class for your passive investment has to be real estate there is no shortage of options you will find that you can feel comfortable with.
    0Reply
  • Igor Avratiner
    Investor · Philadelphia, PA · Member since 2015 · 69 posts · 28 votes
    9y
    By the way there is no wrong answer, just a matter of personal preference.
    0Reply
  • Robert Herrera
    Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
    9y
    Alysa Phalen if you can convert them to condos, you have a Gold Mine on your hands. I do lease options regularly, and this is the ideal situation. Tenant gives you a few thousand to move in, takes care of all utilities, hoa, repairs and Maintenance to the condo. Obviously grounds will be kept up with HOA. Long term tenants. Inbox me I'll shoot you some resources.
    0Reply
  • Dale Carlson
    Rental Property Investor · Port Washington, WI · Member since 2016 · 46 posts · 63 votes
    9y

    If i am understanding this correctly, it doesnt seem like the property you inherited is the problem.  33-44k on 9 doors is pretty sweet actually.  It is the 1 mil in equity that you dont know what to do with.  I would be very, very careful about soliciting advice from strangers on this.  Take your time and feel out your options.  If you put that money back into RE i would say you should get another 100k per year.  Find a mentor!!!

    0Reply
  • Jay Kiehn
    Professional · St. Petersburg, FL · Member since 2014 · 39 posts · 14 votes
    9y

    Hi Alysa,

    I would be available for a free initial consultation if you are interested.

    Thanks,

    Jay Kiehn 

    0Reply
  • Robert Herrera
    Investor · Denver, CO · Member since 2015 · 492 posts · 267 votes
    9y

    Cash Out REFI is the next best option. This will allow you to get the money you want, TAX FREE, and your property will cover the monthly payments on the new loan. 

    0Reply
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