Invest $50K+ for a 7% Return on a Multi in JAX 32208?

Question

Hi BP community, I would like advice from folks who are familiar with the Jacksonville FL area or looking for just some general feedback.

Last year, we purchased a multi-family for about $170K in the 32208 area code. It has a 3/2 house in the front, and a stand alone garage + 2/1 apartment on top. The front house is fully rented/rehabbed.

The garage apartment we had intended to turn the garage area into a living space, put in a stair case and make it a 3/2 house. We hired a terrible crooked contractor who did an awful job, didn't submit permits, and we need to fix a bunch of structure stuff now after he cut into a load bearing wall. *I KNOW it's been a nightmare to say the least!!**

Here are the numbers so far:

$170K purchase

$24K rehab spent to date + Engineering drawings, design etc

$190K all in so far

I'm getting estimates back to fix the structure plus the city wants to add a bunch of stuff brought up to code including replacing all ceiling joists etc.

$190K Spend to Date

+ $50K Estimated Structural, electrical, plumbing, finishes, permits etc

$240K Estimated cost all in

I did the calculations and if we get decent rent for the back house we should be able to make 7.6% ish CoC return. Not ideal, our targets are 11-14% returns.

We have not been able to find similar comps in the area. I found a multi near by in same zip for 6 beds, 4 baths listed for $260K.

Quick Poll:

A) Bite the bullet and drop another $50K to finish this out?

B) Run and Sell? The garage is in an unusable state so not sure what we would get for it.

c) Other? And Why?

TIA for your time!

Michael Orr · Answer

A few things to consider is that JAX is appreciating more than a lot of other markets common for REI so the CoC return isn't the only thing to consider as you are likely also going to experience some good appreciation. Also, any chance you could do a cash out refi after the buildout and thus potential increase the CoC return?

Basit Siddiqi · Answer

Account ClosedThank you for the clarification.If there is such a large structural issue - you likely want to get that fixed before you sell. If you try to sell now, you may get offers but they would likely back out once they get back the inspection report.The lender may also not finance knowing the property has a structural issue.

Basit Siddiqi · Answer

Account ClosedIn my opinion - $50,000 sounds like a lot for the things that you mentioned.Is this the quote from one contractor? I would consider getting another quote.electrical should be like no more than $10,000 and that is like a complete rewire(prolly should be much less)plumbing should be more than $10,000(proly should be much less)Finishes - not sure what this entails but $5,000 - $10,000Pulling permits - $500structural - ????imo - dumping money after bad money is never a good idea.You may want to consider taking a 3-4 day trip to Jacksonville - and meeting with plumbers, electricians and have conversations with them directly to see what needs to be finished and what the cost would be.

Account Closed · Answer

@Basit Siddiqi thank you for your thoughts!

Account Closed · Answer

@Basit Siddiqi - I should have clarified the $50K break down:

$32K for structural repair including replacing new beams, new walls, replace all ceiling joists (to get to code), stair case, peanut curb

$15K for finish like plumbing, electrical, dry wall, kitchen install, bathroom install, flooring, paint

That is good advice on making a trip out to Jax. Thank you for your input!

Chris Gordon · Answer

RE by it's nature is illiquid, never totally passive.

Index funds have RE beat on both those aspects.

Therefore, I don't see why I'd choose to invest in something with less liquidity, and not as simple as index funds, when I'm getting about the same return as them.

Roberta Eastman · Answer

@lenahanson

HI Lena,

I didnt see you mention in your post if you are approaching this with the city as an ADU (Accessory Dwelling Unit) or not?

That strategy may have the city inspectors direct you differently, you can also tap into their experience and expertise on how to get it done quickly & efficiently, since that is a direct result and common goal all of you would be working toward.

Going at it from an ADU perspective, is also a way to help bring affordable housing to the area.

The ultimate goal in most cases is get as much as you can out of every deal, but sometimes a different strategy will get us to the same place, just faster. -- Not sure but could be worth a try.

Whether you are going at it from this perspective or not, as others suggested find a contractor in the area who has experience in ADU's. They have done what you are trying to do before vs a contractor who has not.

I did a quick google search and found a few in the Jacksonville area.

Hope that helps,

Roberta

Sandy Sawyer · Answer

Something to consider is that the concrete in the garage slab is probably not the same strength as the one under the house, that is if the foundation is concrete. The builder didn’t intend on so much weight being added later, as it’s only made to park a couple of cars, not a whole second story. Same goes for the framing. The ceiling was not intended to be a second story floor, etc. Reading your scenario, that’s the first thing I thought of. Was the garage apartment permitted? If you’re adding even more plumbing out there, you’ll need at least more permitting for that. I’d suggest finding a contractor with experience converting garages into living space. He’ll give you lots of free advice.

Thomas Greer · Answer

Just to add to the discussion...@Michael Orr hit it on the head. The whole story of performance is wrapped up into appreciation and reversion/sale assumptions. Run a simple 5 yr DCF/proforma (just back of the envelope) and see what the assumptions are that would justify an acceptable return. Just my 2 cents. Good luck w/ the decision!

Invest $50K+ for a 7% Return on a Multi in JAX 32208?

Invest $50K+ for a 7% Return on a Multi in JAX 32208?

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