Fire Damage 46 Unit. Cut off top floor? Columbus Ohio

[Joel Florek]

Hello BP. Looking for some advice and contacts.

I have a lead on a 46 unit building. The story is that it has been underperforming for a while. Its two 23 unit buildings. A fire recently damaged the top floor of one of the buildings. As it stands, inspectors are saying its a complete gut on the 3rd floor(8 units) and needs a completely brand new roof including the trusses.

Financially the project could likely work if the total renovation costs stayed near $800k to rebuild 8 units, a new roof, and repair damage to some of the lower units. However, there is risk and $800k may not cover all the unknowns that will  pop up as the renovations continue.

To combat that I am thinking a solution would be to just rip off the top floor of the building and put the roof over the second floor. Given the units would only rent for $530 a month at most, paying $100 a foot for rehab and rebuilding doesn't make much sense to me. However, if I could spend $300k or less for a new roof over the second floor and repair lower units(flooring, painting, and potentially some drywall) then this project becomes a lot lest risky and still shows a similar financial upside.

The plan is that to buy the property with a valuation for 23 units that are functional and renting. Then spend construction costs to rip the 3rd floor off, clean up any issues and get 15 units back online for the cost of the construction.

I have to make an offer within the week so need some advice. If anyone has experience with something like this, knows contractors in the area, or other advice that may be helpful please reach out.

[Brandon Ingegneri]

I have done something similar but the building was demolished laterally and salvageable units remained on what was the left side of the original building for all 4 of the existing floors.  The overall footprint of this building in the complex was decreased by 2/3 in this instance.  I think it is a great idea that you came up with so long as the cash flow is there with the reduction in units.  On a deal of that scale, the safe play is the way to go.  If you have the opportunity to still cash flow but can cut your potential liabilities by a half million dollars, then it is a no brainer.  If the deal only makes sense factoring in the additional 8 units and you are dicey on the overall budget on the job and don't have a way of mitigating an overage on your construction costs, I'd say walk as much as nobody wants to hear that.