Do you want to play a game?

[John Nachtigall]

Hi

So 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 page

http://www.co.pueblo.co.us/cgi-bin/webatrallbroker...

• It is zoned commercial retirement home
• It 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 year
• The 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 case
• Bishop 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 $500
• Converting 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.  

Conclusion

• It 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 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

[Sam Dangremond]

"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.