Help! Grand Rapids MI dual use property options?

[Jacqueline Coombs]

Hi, all. I need some help deciding what I can do with a deal brought to me by a friend. Property is a two story with a one story side-addition, 3200 sq ft, century-old storefront-type building with 2 1-bed apartments upstairs. Property used to house a print shop and the owner lived in the larger 1 bed apt 3 years ago but it has sat vacant since then. It is on the up and coming west side of GR in a decent neighborhood with a few small business in the immediate vicinity. The property needs significant remodeling done ( flooring refinished, walls and ceilings patched/painted ( upstairs), drop ceiling removed and rewiring downstairs, some windows added, 2 small roofs redone in back, new bath and kitchen fixtures/cabinets( x2) and a few walls moved/removed depending on design) but the separately-metered mechanicals and main roof are newer and in good shape. I have never done a rehab like this before but I'm guessing it would need at least 50k to get it to the point of having 2 nice apartments and 2 nice commercial spaces downstairs. It could also possibly be converted to a 4 plex multi family if the zoning was changed. The property has the original high tin ceilings on the first level and original hardwood floors/trim throughout. It is aluminum sided and has 7 parking spaces. I personally think the property has a LOT of potential but I am not in a great position to buy it right now. I have two other investment properties and a SFR in escrow and after that closes, my cash will be wrapped up for a while. I do have the money to buy it and remodel it in retirement accounts but my husband does not want to use that money, especially for a rehab project this large! Also, the seller needs the money from the sale to pay medical bills and such so seller-financing won't work. I really don't want to let this one go but realistically, I don't have the money right now or the experience needed to rehab it correctly. I have thought about wholesaling the deal but I have never done that before. The seller wants 100k for it but I am really not sure what an accurate ARV would be and if that is a good deal or not taking into account the rehab cost. My conservative guesstimate for rents once finished would be $500/mo each apartment, 1200/mo for larger commercial space and 800/mo for smaller commercial space, so $3000/mo gross rents. Taxes are approx $2400/year and I'm not sure what insurance would run on a building like that. Does anyone have any ideas for me or do you know if this is in fact a good deal? Thank you so much for your help, BP!! Jackie Botham, GR, MI

[Justin Workman]

lets start by looking at the numbers.  Your projected rents are 3000 per month or 36k per year in gros rents.  Subtract out all of your expences, taxes, insurance, vacancy, maintance, lawn care snow removal ... roughly 50% of your income is the rule of thunb but run the numbers.  It leaves you with a net of 18k per year.  With the repairs mentioned i think your rehab budget is way to small.  I would gues you would be closer to 100k posibly, because you are spliting the utilities and updating you are also going to have to build firewalls to seperate each unit per code. It depends on what you do.  Lets say you buy it for 100k put 100k into it on the rehab and rents and expences net you 18k per year.  18000/200000 = .09 or a 9 cap.  Not the best deal for the risk and work required.  If you only put 50k into it, its a 12 cap which is beter, but again its a lot of risk.  Also consider comercial space normaly has longer vacancies between tenets, and the property taxes will uncap once you buy it and could raise your tax bill significantly.  Keep digging into the numbers, and be conservative on your estimate, make sure you cover everything.