Complete Commercial Property Gut/Renovation

[Alan Smith]

Hi All,

I am currently looking at an 11,000 square foot commercial property in a small upstate NY town between Rochester and Syracuse. If you look up the definition of a distressed property you'll see this property. The buildings first floor was once a general store that closed ~10 years ago and okay shape. The second floor was once apartments but not since the 50's and 60's. We've been told the roof was replaced 6-7 years ago but during walk through there were some noticeable leaks. The 2nd floor will be a complete gut (electrical, plumbing, HVAC, windows, etc). I believe the first floor could be sectioned into rentals with the store front remaining a smaller commercial rental. The basement has a walkout entrance and could support some smaller self storage units. 

I believe the property could easily support 5 2BR (900 sq ft / $850 utilities included),  5 1BR (600 sq ft / $600 utilities included), and 10 (10x20) self storage units if the town allows it. A nearby smaller property nearby has 8 units. We will certainly find this out before moving forward. At this point I would assume nothing from the store front commercial portion. I believe rents could be slightly higher when including utilities and I assumed 15% vacancy when I believe it will be less than 10% based on conversations I've had with other locals. Taxes would clearly grow when the property reaches its end state. I also believe there is margin left in the yearly expenses and would be comfortable if the 12% cap rate drifted lower. Out of the gates we'd self manage, but would leave the possibility of outsourcing it later.

Would love feedback on the numbers. Obviously would need more due diligence to see if $250k is even realistic for renovation, but I think it has a ton of potential. They currently want $70-80k for the property, but I can't see them getting that in its current condition and its been generating $0 for a long time now. 

Does anyone have a roofer in the Rochester, NY area they'd recommend for this type of property so we can get an assessment on the existing leaks as well as someone to get an assessment on the foundation/brick structure? 

Thanks,

Alan

CAP Rate	12
Revenue	99000
Vacancy	-14850
Effective Gross Income	84150
Operating Expenses	3000
Management	9900
Repairs/Maint	3000
Utilities	15000
Taxes	3001
Insurance	11000
Legal	2000
Misc	0
Replacement Reserves	3000
Total Expenses	-49901
NOI	34249
NOI CAP	285408.3
Renovations	250000
Business Valuation	35408.33