Reinvesting in St. Petersburg, single, multi or commercial?

Question

Aloha everyone! I Due to the needs of my aging father, I decided to help out and return to the mainland in the next couple of months. I sold all my rental properties here in Honolulu and my home is in escrow, and I plan on moving the proceeds of the rentals to St. Petersburg Florida. My 1031 account is already set up, and the rental properties are scheduled to close on July 14th.

My past experience with real estate has always been either condo rentals or single-family home rentals, and I'm undecided on what to use the 1031 funds for in St. Pete. I need to reinvest about $1,120,000, and have looked at everything from single-family homes, multi-family homes, apartment buildings and commercial properties with either office, medical or retail.

Friends think I'm crazy to buy single-family homes since I'd need a number of them to satisfy the 1031 exchange requirements due to the low cost of properties in St. Pete. I'm most comfortable with this avenue, but the work load seems like it would be higher than just purchasing a single apartment building or commercial space. I'm torn because I don't have any experience with multi-family or commercial properties.

I'm purchasing a home in the Historic Old Northeast neighborhood, and would like to invest on the east side of St. Pete if possible close to downtown (Old Northeast, Crescent Lake, Uptown, Woodlawn, etc.). Any suggestions would be greatly appreciated!

Joel Owens · Answer

"Due to the needs of my aging father"

My father was killed in a car wreck when I was 16 suddenly. So moving to be with your dad more hits home to me.

I think you should invest in a turn key asset such as triple net or retail where you are more hands off. Have time to deal with your dad's issues instead of tenant ones. Hopefully your dad lives a lot more longer. I wouldn't take on an intensive asset that places demands on your time especially with the dad situation.

I have high net worth clients with a lot of money. Now that they have made it they just want to grow it well with the least amount of hassle possible. The realize no amount of money in this world helps them to live forever so they value time above all else.

Just my take on it. Hope it helps.

Daniel Miller · Answer

@Nick Gravina

Hey Nick. I live in the Old Northeast. You couldn't have picked a better neighborhood to live in....I don't know if I'll ever move!

As far as investing goes St. Petersburg really doesn't have a "best" option for you, it depends on the deal. SFHs would work a lot better than some of your friends think. The county is extremely dense and navigating to and from SFHs in St. Petersburg is much more doable than Tampa. Lot sizes are generally smaller and people are packed in over here. Also, SFHs that went through foreclosure in St. Petersburg are still popping up daily. Many SFHs have garage apartments behind the house. This might be an avenue you could pursue. I saw a SFH pop up on the MLS today for $69,000 that included a garage apartment behind the main house. Estimated rent anywhere between $1300 and $1500. House needs $20,000 to be rentable. That's a solid ROI and you have semi-diversified income (two tenants).

The apartment market is very competitve. C Class apartments are trading in the 8-9% Cap Rate range. Apartments in the Old Northeast go for $100,000 a door. Check 524 Bay Street NE and 1120 Beach Drive NE. Over $100,000 a door in both sales. I mostly invest in apartment buildings and I haven't made an offer on anything substantial since 2012. There are deals to be had but they take work, luck, and typically having an in with someone.

I'm not too intrigued by the office market here. Tampa is considered "the financial or business" capital of the Tri-City (St. Petersburg-Clearwater-Tampa) area and it is home to many more small businesses and entrepreneurs.

The warehouse market is picking up. Small warehouse build specs have been popping up around the county. That being said, Industrial Cap Rates are near all time lows.

If you want to talk or need some advice let me know. I'm a Commercial Real Estate Agent, but I am an investor first and I like to help people. Oh, and stay out of the South side!

Michael Jobe · Answer

I'm with @Joel Owens on this one as I too lost my father way before his time and would give anything for another day with him. For the amount of money you have to invest look for a triple net where they have a significant amount of years left on the lease. Assuming that you can get the ROI you desire, it'll leave you plenty of time to spend with your dad without the hassle of being hands on in the daily operations. In any case, let us know what you figure out. Good luck!

Nick Gravina · Answer

Thanks Daniel and Fred for your comments! You both reiterated exactly what I've been thinking about over the past few months. I believe I should stay with my original plan of single-family homes which I'm most comfortable with. There seems to be plenty to choose from in desirable neighborhoods, so I just need to run the numbers.

The 1031 is a tough animal due to the 45-day identification period, which is difficult being so far away. I am working with a realtor/investor (thanks for the offer Daniel!) and am planning a trip back to St. Pete within the next few weeks after the closing.

Fred Conway · Answer

It sounds like you're first priority is just getting rid of the cash. Why not pay cash for the houses? You'll have less property to manage and your cash flow could easily be over 12k a month with 8-10 homes

Reinvesting in St. Petersburg, single, multi or commercial?

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