Converting an old assisting Living facility to a 16 plex?

[Ralph Stowe]

I took a detour to work this morning and rolled past an old run down building for sale and figured, "Hey, that could be a cool 16 plex!" I found out through my realtor friend, it was once valued at $1.1 million, it was purchased last year for $561,000. They are now asking $850,000. If I do this, I might start at $500,000 and haggle.

Lets assume I get it for $550,000-$600,000, Where does one begin calculating rehab costs? It was an old assisted living facility. The building is 100 years old, it is 18,000 square feet. It exterior doesn't look TOO bad.. The inside would need to be a full gut most likely to make 16 two bed 1 bath apts. In that area 2 bed 1 baths rent for $1100- 1200/mo. There is the risk of lead and asbestos. Does it make sense to try this?

[Michael Ealy]

Originally posted by @Ralph Stowe:

I took a detour to work this morning and rolled past an old run down building for sale and figured, "Hey, that could be a cool 16 plex!" I found out through my realtor friend, it was once valued at $1.1 million, it was purchased last year for $561,000. They are now asking $850,000. If I do this, I might start at $500,000 and haggle.

Lets assume I get it for $550,000-$600,000, Where does one begin calculating rehab costs? It was an old assisted living facility. The building is 100 years old, it is 18,000 square feet. It exterior doesn't look TOO bad.. The inside would need to be a full gut most likely to make 16 two bed 1 bath apts. In that area 2 bed 1 baths rent for $1100- 1200/mo. There is the risk of lead and asbestos. Does it make sense to try this?

 Is this your first deal? Have you done a heavy repositioning deal like this? If not, then don't do it. Why?

1. It's hard to get bank financing for something like this. You have to have access to cash to buy it or use hard money and if you use the latter, they will want you to have the experience, which I am assuming you don't. Also, if you use hard money, you need to factor in holding costs.

2. Heavy rehabs like this will almost always take twice as long to finish and twice as much cost as you estimate. Lots of things can go wrong. Permit delays is always a possibility and if you're using hard money, that's very costly. And with the building being 100 years old, you can be looking at very expensive structural modifications.

Another option is for you to partner with someone who has the rehab experience.

To answer your question as to how much it will cost to do the conversion, without knowing the specifics, I would say it could be $30K/unit on the low end and can be as high as $50K/unit or even more. So you might spend $600K to buy it and another $500K to $800K to fix it for a total of $1.1 to $1.3M  not including closing, holding and miscellaneous costs.

Assume you're at $1.5M "all in". With rents of $1100/mo or $211,200/yr gross rents and applying the 50% rule - your NOI will be around $105,600 or 7% cap. If that's what people are paying for similar buildings in that area, then doing the project MIGHT be worth it.

But again, if you don't have the experience, the financial resources, and the team to make it happen, I would say either "PASS" on it or find a PARTNER who can help you make it happen.