Converting Old Hotel into Apartments. What am I missing?

Question

I have the opportunity to purchase a bank owned vacant two story sixteen room hotel with lake view and access. It is located in a realitively small town with diversified industry and very gradual decrease in population. It will not be able to compete with existing hotels as a hotel. I'm told by multiple sources that rental property is hard to find in our area. Cheap two bedroom apartments rent for $500/month. Higher end rent for $800/month. The property is large enough to eventually develop into 30 two bedroom units. I want to get into the existing hotel and convert into three two bedroom and three one bedroom apartments and have rental income to cover banknote times two in case there is a slow ramp up to capacity or turnover issues, etc. Negatives: Cost to convert. Lower units have only 7' high ceilings. Near a highway (Great for marketing and exposure, but not great for noise). Positives: Lakeview. Lake access. Land to develop past first eight units. If I was independently wealthy, I would not hesitate to purchase and possibly even clear land and start over. Unfortunately I do not have this option. The property is $300,000 with no improvements. I own a commercial property (recently appraised) which leads me to believe that the hotel could appraise for about $600,000 once developed. What am I missing or do I need to research? I am new to this whole thing and would appreciate any advice.

Brent Coombs · Answer

The FIRST thing you are missing is: what will the City have to say about you converting it?

ie. How many dollars will they charge you, just for the privilege of listing their hundreds of enforceable Codes - many of which MAY end up being uneconomical to comply with?

Welcome to BP. Hopefully you'll get useful feedback from others who HAVE done it. All the best.

Account Closed · Answer

You're talking about construction in an area with declining population. You need a team of experienced people around you, or you'll lose all your money fast (due to spiraling construction & rehab costs). This is completely a full-time job & a business. You need to understand every aspect & outcome completely before going in, during rehab, and know your options coming out.

Is it worth the risk? That's for you to decide. You'd be buying a job, not an investment.

Best of luck.

Felix Landin · Answer

Benjamin, I am doing the same thing in San Antonio TX. How did your project go.

Account Closed · Answer

Well... I hate to be negative.  It really just comes down to how good is the view of that lake.  If you love it, and the old hotel maybe you should do it.

If not... it is high risk, for little potential reward.

Dan Handford · Answer

@Benjimen Elliott Johnston There is not enough information to determine the best option here. Just knowing the the population is declining would be a big red flag for me. Here are a few other questions that I would have:

1) If the population is declining then why are there so few places to rent?

2) Are the rents growing in the area?

3) what is the median income level of the area? Is it growing?

4) what are the crime statistics?

5) how many people live below the poverty line?

So many more questions that I have here on this property before I would consider investing.

The $600,000 projected appraisal...is that on the fully developed thirty 2 bedroom units or just the 9 units that you are converting the existing 16 room structure into...I am totally confused here...why would you convert a 16 unit hotel into only 9 bedrooms? Am I missing something here?

David A. · Answer

@Benjimen Elliott Johnston how did this opportunity turn out for you. I am starting to look into something similar and would also like to know what you found out. Feel free to IM me directly if you want. Thanks.

Benjimen Elliott Johnston · Answer

Michael Biggs could you elaboarate on what the greatest risks entail? I want all the negatives I can get. I'm not questioning the advice but it does not elaborate enough as to why.

James Peter · Answer

They have good cameras to perform time lapse videos.

James Peter · Answer

You can use the construction cameras or time lapse cameras to monitor the construction site. This will really helpful for you to manage the construction. If you are really looking for something like that you can consider OxBlue construction cameras.

Benjimen Elliott Johnston · Answer

This project is a partnership with a builder in my area. He is a friend whom I've done commercial property Rehab and new construction with. He is always on budget and under time frame. he knows all the zoning and codes almost by memory. There are no restrictions on zoning. Declining population may be %5 in 25 years. My wife is a CPA and my best friend is a lawyer. Any other professional that I should seek advice from? I have an employee that has experience and is interested in on site management in exchange for a room which would not be in the six apartments remodeled. Any additional pearls of wisdom would be appreciated.

Converting Old Hotel into Apartments. What am I missing?

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