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HiSo I am new to REI and one of the things I am doing is just practicing analysis on loopnet listings. I am actually planning on investing with syndicates, but to educate myself I am looking at all aspects of REI. I was searching in my hometown and came across and old convent. I thought it might be a fun exercise to put it out to the community, what would you do to this property. Or would you never buy it even for a $1. I am not all that creative, so below is my very conservative analysis of turning it into an SRO. convert 1 of the rooms to a bathroom, so you have 7 small rooms, 1 master with a bath and 2 shared bathrooms for the 7 small rooms. Misc information from assessor pagehttp://www.co.pueblo.co.us/cgi-bin/webatrallbroker...It is zoned commercial retirement homeIt was bought from the church for $60,000 in Aug 2016, so despite the loopnet description I suspect it is not "rehabbed"They really do only pay $282 in taxes a yearThe owner is from Denver, so out of town, probably would be happy to make 10-20k for a few month hold. I bet you could get it for 70-80, but I assumed 100 as worst caseBishop Buswell, who built it, was a really cool guy, I knew him, he was a real staple of the Catholic Church. My dad used to call him "Buzz Baby" which my Mom thought would earn all of us a front seat in hell :-)You can do a Google walkaround yourself, but I can tell you the neighborhood is poor working class, but not a crime haven. Best description is old.I assumed rents of $400 for the small rooms based on a discount from $650-1000 in the houses in the area. I would be interested in your opinion but that is a huge discount. You would own the bottom end of the market, even in Pueblo.I bumped the master with the private bath to $500Converting 1 room to a bath loses some revenue, but 8 people sharing 1 bath just seems like too much. On the other hand your prospective tenets cant be choosers, so your decide. I tried to overestimate expenses. For example I assume 1 of the rooms is always vacant every month. 10% for all expenses and about twice what I think you would really pay on utilities. So in the end operational expenses were 66% of income not the normal 50% estimate. Pueblo is actually a very inexpensive place to live so 50% is probably a good estimate, but I wanted to be conservative. 30k for renovation is way conservative especially considering the rooms have plumbing so converting 1 to a bathroom will not involve re-routing lines.I also assumed a loan that was expensive based on SROs being hard to finance. But I did some research, there are FHA loans for SROs. You would find something eventually. I valued the final property at an 8% cap. Maybe I should have put a 10% cap, but that does not matter to cashflow analysis. You are not buying this property for appreciation. ConclusionIt actually cashflows. I was shocked, even with all the conservative assumptions. If you estimate expenses at 50% of income, it goes up to 20k NOI and a COC return of 35% (WOW). Actually buy it for 70-80 k and you are talking an immense return. I think the biggest unknown is can you run it as an SRO. The zoning is commercial retirement, so if all the tenets are over 55 I think you fit into the existing zoning without any change. Thought?But I am a rank amateur. I know you all can do better. Tell me what you would do with it.Or, is a property in poor area of a tertiary market doomed to sit forever. It seems like 1 of the rules that people keep repeating is "buy in upcoming markets". This is a stable, but poor neighborhood. It was always this way, and I don't see it changing ever. Convent Conversion 901 E Evans Ave Pueblo CO, 81004 Purchase Price100000 After Repair Value167,000 Closing Costs5000 Estimated Repair30000 Down Payment20000 Loan Info80,000 @ 5%, 2 points, 25 years 7 small 40028001 master500500Total Income 3300 Operation Expenses Vacancy (12%)400 CapEx (10%)330 Water200 Insurance200 Repairs (10%)330 Electricity200 Garbage200 Management (10%)330 Total2190 Loan467.67 Total Expense2657.67 Total Cash Needed56,600 NOI13,368 COC ROI13.70% Final Cap Rate8% Monthly Cashflow646.33

Sam Dangremond · Answer

"I assumed rents of $400 for the small rooms based on a discount from $650-1000"I own a 2/1 SFH three blocks down from this property, non-rehabbed I get $445/month.So $400 for a single room in a group home sounds high.

John Nachtigall · Answer

Fair points to be sure. But what would you do with the property if you were to buy it. And to be fair, I did put in 10% for property management, so I would not be running anything. As I said in my original post, however, I am not going into REI to own property, I am going to invest money in real estate deals. But in learning the business, I am practicing on stuff like this to get the gist. Even if you lower the rents to $300-350 per month, with realistic expenses running 50% it cashflows. I think your real competition is weekly/monthly hotels. The cheap houses you see on Craigslist are not actually in Pueblo. The Pueblo page includes everything in Colorado all the way to the Kansas border. Those are homes in La Junta, Lamar, and other small towns hundreds of miles away. I did see stuff in Pueblo for $425-$475. So at $400 are still are at the low end of the market. Remember that $40 would be a 10% savings, so 350-400 is real possibility. I was thinking that maybe an additional "master" with a private bathroom that you make by cutting into the space for the living room.@Bill S. The small rooms only have sinks. But from the pictures on loopnet, there is no room to put even a toliet much less a shower. they are truly small cells with no locks. Which is something you would have to change, new doors with locks.It is not that I think my plan would be great, I am wondering what a great plan would look like. Or better question is there a "great" plan for a property in this area of this city.If real estate is about solving problems, what is the best solution to this one?

Bill S. · Answer

I agree with @Sam Dangremond I have no idea what rooms rent for in Pueblo. I did a quick Craig's List search and it's all over the place. Saw one on the Southside for $180 per month. Running a rooming house for $650 per month seems like a lot of work to me. Lots of cash up front as well. You mentioned each room was plumbed for a bathroom. Does that include a toilet and shower or just a sink. Supply lines are easy with pex but drain lines and gravity create some significant challenges.

Convent Conversion

901 E Evans Ave
Pueblo CO, 81004


Purchase Price	100000
After Repair Value	167,000
Closing Costs	5000
Estimated Repair	30000
Down Payment	20000
Loan Info	80,000 @ 5%, 2 points, 25 years


7 small	400	2800
1 master	500	500
Total Income		3300

Operation Expenses
Vacancy (12%)	400
CapEx (10%)	330
Water	200
Insurance	200
Repairs (10%)	330
Electricity	200
Garbage	200
Management (10%)	330
Total	2190

Loan	467.67

Total Expense	2657.67
Total Cash Needed	56,600
NOI	13,368
COC ROI	13.70%
Final Cap Rate	8%
Monthly Cashflow	646.33