Your Input on this 4 Unit Multifamily in Baltimore

[Alexander Biniam]

Hi, my name is Alexander and I invest in Washington DC and Richmond on SFH units (buying rentals). I recently have shifted my focus to Baltimore focusing on small multifamily units (under 5). Below is a potential "live" deal and I wanted to get advice since several factors are in play to come to a fair offer (including bring rents to market value and adding a new unit).

a. Location Info: Charles Village near Safeway and CVS.

b. Property Info: 3 unit multi-family zoned "B23 Community Business" (i.e., mixed commercial and residential). All 3 units are currently rented out. All units have individual metering minus water. The basement unit is not individually metered (yet).

c. Unit Info: 

- Unit #1: Commerical space currently renting for $750 but should be renting closer to $1000. The unit is a studio layout. The unit is in good condition. Requires minimal work to uprent out.

- Unit #2: 1 bedroom / 1 bathroom. The unit is in decent condition but will need cosmetic uplift (e.g, paint, new kitchen tile, etc) to bring in a top price of $950 monthly. 

- Unit #3: Studio loft currently rented for $825 but after cleaning up and upgrading kitchen should be renting for $1000.

- Unit #4: Basement unit is "technically" a unit meaning it has own entrance (back and front), separate bedroom and bathroom, kitchen and 2 egress windows. Hope in the future is to renovate (est $8k - 10k) to clean up finish bathroom, kitchen and pave backyard for 1 parking space. Estimated rental would be $850. 

#1 Question: The current NOI/Purchase Price is 4.9 CAP (I know horrible). Is this typical for multifamily in Baltimore? My research shows it really should be in between 6 -7. What is a good CAP rate for the Charles Village area?

#2 Question: How hard or easy is it to re-zone a 3 unit to a 4 unit?

#3 Question: My plan is to invest $24K to raise the current annual gross rent from $29,100 to $46,200. Normally, I would offer a "fair" value price base on what it cashflows now but with all of the outbidding going on in Charles Village, I thought the CAP rate would be fine since I would be raising the value over time (long-term investor) by increasing the NOI.

Please let me know what you think, especially those from the Baltimore area. I have combed through many deals and this is one where I see the value play for this changing area -- but before I make a mistake please share your thoughts.

P.S. I would not normally ask a question like this but with JMU and other developments going on, Charles Village seems a good spot to surf the gentrification wave but I wanted to hear from others who have experience with Baltimore to get a "gut" check perspective moment.