Seeking Advice on an Over-My-Head Real Estate Opportunity (Boutique Hotel) in Souther

[Bella Gonzalez]

Hello! I've found myself in a unique situation regarding a real estate opportunity in Southern Utah, and I'm looking for some guidance and advice as I'm relatively new to this space and it's a bit overwhelming.

To respect the confidentiality of the deal, I can't disclose specific details, but I'll provide some general information to give you a better idea of where I'm coming from. I've come across a 10-room run-down hotel that's currently in service. The listing price is quite high based on the NOI, and to achieve a reasonable 9% cap rate, the purchase price would need a significant discount of nearly $1 million.

The seller is open to seller financing for half of the purchase price with a 5-year balloon payment. Technically, it could cash flow with a bank loan covering half the price and minimal interest payments to the seller on the seller financed portion, but it's a bit tight. Our post-renovation projections look promising and suggest a great return on investment. Additionally, we have a personal connection with the seller, and the property has been on the market for a while, hinting at potential progress since we first initiated discussions. On top of all this, I'm a designer with big plans for the property's future.
Here's where I could really use some guidance:

1. Finding a Partner: I recognize that I need an experienced partner to help qualify for the loan. How do I go about finding the right partner, while I have networked with some hotel flippers, none are interested in investing in this area of the country.

2. Capital Raising: I need to raise approximately $600k, which is quite daunting since all of our previous deals have been self funded. Any tips or resources for raising the necessary funds?

3. Tackling the Challenge: My husband and I aren't afraid of challenges, but we also understand that this might be a bit over our heads at this point. Do you think we should forge ahead, get a partner, and bet on ourselves for what could be a life-changing venture? Or should we consider other, more manageable opportunities?

4. Passing Off the Deal: Is there a way to potentially pass this deal to someone else if it turns out to be too much for us?

I truly appreciate any insights, advice, and kind words of wisdom you can offer. I'm open to learning and have already gained a lot f education from pursuing this property so far. Thank you in advance!

TL;DR: I have a real estate opportunity in Southern Utah with a unique seller financing offer, but I'm new to this and need advice on finding a partner, raising capital, handling the challenge, or potentially passing the deal to someone else. Any guidance is greatly appreciated!

[Jude Campbell]

Hey Bella!

Pretty intricate deal no doubt!

Here're my first impressions: chances are, a million dollar contraction in list price is not going to come by very easily.  More to the point, a 9% cap for a hotel room doesn't immediately strike me as a slam dunk, especially if it is run-down. 

Finding a partner:  the best strategy is to turn over as many rocks as you can until you find someone.  The better the deal, the easier time you're going to have in the search process.  Often, I would look to private/family offices with money to deploy, however, these institutions are pretty shrewd and like to be hands-off, meaning management must be in place and the deal has to be fantastic.  The beauty with this is it ties together partnership and capital raise. 

Tackling the challenge: this sounds like it is as much a lifestyle decision as it is an investment.  It depends on how you want to approach this: do you want this to become your life or are you looking at it from a sheer monetary perspective?  Keeping your eyes peeled and searching for other opportunities is always a good idea.

Passing off the deal: this is a tough one.  My immediate thought is no but you can get creative.  Similarly to finding a partner, if you want someone to unload this to, you'd have to find someone pretty eager to take it off your hands.  In this case, the deal would have to be attractive to them. 

Some other thoughts: I like the idea of getting into a property that could use some elbow grease, but the economics need to be glaringly obvious. The problem with CAPEX on investment properties is that it's often not appropriately baked into a model. To really see how an improvement is going to impact your investment, you'll need to model it with contingency, time accordingly. Many people overlook how serious this can be.

I have some additional thoughts but I'll send you a connection request and we can chat!

J