Residential - to - commercial remodel / Value add $500K

[Emily Runyan]

Investment Info:

Office Space commercial investment investment in Gallatin.

Purchase price: $485,000
Cash invested: $125,000

This property was zoned residential and commercial. It is a 2000 sq ft cottage-style home that was used as a residential home. My husband and I purchased it at $485,000 (well below the asking price of $550,000). We put $165,000 into the remodel and conversion to a commercial property. We turned the 2 bedroom, 2,000 sq/ft home, to a 5-office, property with a kitchen, two bathrooms, a parking lot and a backyard. After the remodel, we refinanced with a commercial loan and recouped the cash we put into the remodel. We estimate that the property is nownworth $950,000 to $1,050,000 (based on comps) - we gained approx $500,000 in equity by converting this into a commercial property!

My psychotherapy group practice (Tennessee Mental Wellness: www.tnmentalwellness.com) rents this space from our rental property LLC.

How did you find this deal and how did you negotiate it?

I drove by the property, it was near my psychotherapy office. It was for sale by owner. I met with the owner 4 times, walked the space, and talked to her about her motivation to sell the property. I learned that she was most motivated by selling and moving quickly, so I offered $65,000 less than asking, but with no inspection and no contingencies.

How did you finance this deal?

Residential convential loan for the purchase, then after the remodel we refinanced with a commercial loan and cashed out our remodel investment.

How did you add value to the deal?

We remodeled the home, turned it into a 5-office commercial property, added a parking lot. Increased the value $400,000 - $500,000.