Re-purposing a small office building -- Creating a Co-Working space

[Shane H.]

I've searched a bit and have not come across a post that quite fits an investment opportunity I have been looking into.

At the bottom I put a cliffs notes version of the building/surrounding area (probably could have shortened it up, and maybe I'm looking at too many external factors - however let me know)

My thoughts - building would be good structurally/mechanically - located in the downtown core - building is already built out into 4 offices and reception area main floor with a kitchenette/half bath

2nd floor has 7 offices, 2 baths, 2 storage rooms

2 entrances into the building, street parking on 2 sides, building is located across from the local courthouse

(Could potentially turn the upper floor into a couple of apartments or one large apartment - rent for 800-1k a mo for one large apt, however rehab $$ would climb - city would be more than willing to change zoning for this and encourages this type of arrangement in the historic buildings - ie office bottom floor, apt top floor)

$60k Purchase Price

$20k Rehab budget

Potential gross income $2800 per mo (7 offices $400 ea)

Guesstimated Pro Forma

--  $33600        Gross Income - 7 offices $400 ea
       (5040)        15% Vacancy
      (2400)        Property Tax
      (2500)        Insurance
      (6000)        Utilities - figured $500 per mo/gas/elec/water- think this is high though
      (1680)        Cap Ex
      (4980)        P&I Pmts $60k loan 5.5% interest - 20 year amortization
      (4800)        Janitorial - $400/mo - this would probably be lower

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$      6200        Cash Flow

I think I could improve on the above cash flow, not sure the Insurance is 100% accurate, could possibly increase gross income if I have more than 7 offices etc.  Thinking this would be a near worse case scenario

Rehab Plan

Thinking I could possibly do interior upgrades, modernize the office into something appealing, (could be as simple as removing the paneling and exposing the brick, redividing the offices, updating the baths etc) and then rent out individual office spaces and charge $400-600 a mo for each office space - They'd be gross leases and I'd take care of all utilities, janitorial etc -- would not provide any onsight receptionist, fax machines etc -- each person would provide their own office equip -- I could potentially provide office furniture if needed, plenty of good used stuff to be found locally

Thinking at a min 7-8 office suites, possibly more -- Per agent and my knowledge of community/research online I dont think a setup exists like this to attract possibly an IT person, a 1 man/woman business such as an accountant etc.  I think there would be a demand for it.  A buddy of mine lives in an even smaller town a bit closer to Wichita, and he rents out space in a similar setup -- the landlord accidentally turned it into a co-office type of setup - building was an old bank he got really cheap at an auction (think $60-70k) and he was getting around $2k or so in income from it, renting it out to a hair salon, my buddies online business, an accountant, one tech guy etc and he really didnt do much to make the inside appealing at all other than paint.

After reading through some of what I posted below do you think this is risky?  Any glaring things I really need to research etc?  Could I potentially be heading in the right direction?  I think if I wanted to exit, not sure how quickly I could move the building, obviously if it's fully leased it would be more appealing to other investors, but more than likely if it sold for $100k after I did my upgrades and had a decent cash flow only small time local people would be looking at it.  

--   3780 sq ft 2 story office building (office was previous use)

--  Built appx 1900 -- think it's brick, or block with some sort of facade, possibly limestone as that is common in the area -- has a basement as well with partial crawl space -- good soil in the area

--  Appears to be structurally sound - no issues - however needs further investigation, the floor joists are likely large old world pine/oak or other hardwoods shipped in so they should be good as long as no previous termite damage/dry rot

--   Basement professionally waterproofed 15 years ago - should be no water issues, we've had lots of rain locally (more than we've had in likely 10-15 years) and basement supposedly has not leaked, think it's limestone/concrete -- Building also surrounded by Concrete -- water should not be an issue

-- Per agent this week there will be a new roof put on (Flat Roof) at a cost of $17k

-- Asking price $60k

-- Has been occupied by an accounting firm for I believe 40-50 years - they owned the building and have left as they merged with another local accounting firm and moved to another building

-- Dated inside -- lots of paneling, probably dim lighting, HVAC is kind of dated

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Potential Downsides/Other Pertinent info

-- Likely will have low or nearly non existent price appreciation, other than upgrades I'd put in -- I probably wouldnt factor it in any of my figures

-- Lots of ranching/agricultural, oil/gas, wind energy activity around - city has the closest major grocery store/Wal Mart to lots of people located in more rural areas within a 1-2hour driving distance -- town is important for that aspect

-- Located in a small community - town has appx 12-15k people, however it is a bedroom community located off of a VERY well maintained interstate and it's only 20-30 mins drive from the City I live in that has 500k people --   The city is a good "Clean" town if that makes sense, very nice community gym close by

-- Building is on the downtown core - right off of one main arterial and 1 block from the other -- no plans in the future to alter traffic flow etc --- Lots of money has been put in by the city/local govt to maintain the downtown area and make it a very nice walkable area - with lots of little shops, antique places, a couple cafes etc 

-- A local company in the refining business recently moved the majority of their business there from Wichita and has put a lot of money into this community -- large donations to the college and elsewhere (they make additives and are a nationally known brand -- have been around since the 70's - only way they go down is if we go away from the internal combustion engine - dont see that happening in the time I'd own the building)