Analyze my deal! Multifamily Buildings converted to STR

[Kevin Morgan]

Current Portfolio:

Building 1 Summary: Chicago Near West Suburbs; Vintage Building with 6 apartments and 6 retail storefronts. 2nd Building on property has 6 office suite and a 5000 sq. ft. warehouse/industrial space.

Acquired: 2016; $1.6MM

Additional Investment: Full renovation of 5 of 6 apartments

Status: Sold in 2020; $2.1MM & leased back all 6 apartments. 5 of 6 apartments converted to STR. One apartment has standard tenant/lease in place.

Building 2 Summary: Chicago Near West Suburbs; 9 apartments; vintage mid-century apartment building.

Acquired: 2017 $790,000

Current Value: $1,300,000

Additional Investment: 9 of 9 apartments full renovation

Status: 9 of 9 apartments converted to STR.

Building 3: Chicago Near West Suburbs; 10 apartments; vintage mid-century apartment building.

Acquired: 2017 $1,125,000

Current Value: $1,400,000

Additional Investment: 2 of 9 apartments full renovation. 2 of 9 light renovation; 6 of 9 apartments little-to-no renovation needed.

Status: 6 of 10 apartments converted to STR. 4 of 10 apartments have standard tenant/lease in place.

SUMMARY:

19 apartment rental units are owned and managed by me

6 apartment rental units are controlled via sale-leaseback arrangement

20 of 25 apartments converted to STR (fully managed by me)

5 of 20 apartments have standard tenant/lease in place (fully managed by me)

FINANCIAL SUMMARY:

Gross Rents/STR Income: more than $600,000 annual

NOI: more than $400,000 annual

Cash Flow after debt service: more than $300,000 annual

Total Invested Capital: $550,000

Not bad for 4 years. The 2016 purchase was my first commercial real estate investment. I'd consider selling the real estate and the STR operation. I'm not sure if there are buyers out there for the STR side of the business. I would assume a sale of the properties would happen at "standard" rental NOI & Cap Rates. My estimate is that the buildings would sell for $3MM using such a standard valuation. But the additional cash flow from the STR business is substantial and it would not make sense for me to sell the Real Estate at standard valuation and give up that cash flow. What do you think?