Expensive, none value increase repair, still a good deal?

[Alex Hal]

Hi, so I found a good deal on a property that has 3 buildings (2 office, 1 residential) in the Catskills NY area. The purchase price was 230k . We agreed on a price and I had the inspector out and he said that plumbing, electric, structurally everything was in good working order. Roofs on all the buildings needed to be repaired, with the largest office building being the first. The roof is original with additional layers added over the years. Given that it’s the Catskills, snow accumulates on top of the roof for almost the entire winter season.

I asked my RE broker to have a roofer come out and give an estimate for the 2 office buildings. The RE broker found someone reputable and got back to me with a quote of $45K for the big office building and 40K for the smaller office building (would need to be done in next 3 years) – this would include tear down, using shingles that last 30 years, repairing mortar joints on chimney, etc. The roof has lots of elevations, runs, etc. She did not even wait to tell me the roofer cost, she went to the sellers and they immediately dropped the price to 200k . She is asking me I am still interested in the deal.

Right now my calc shows the property cashflows $600 for the month with one vacancy. After the vacancy is filled, that would add another $1,000 / month.

The property is generally in good condition with some upside for appreciation and there are some changes I was thinking about to increase the value, I.e. converting from oil to electric and have the tenants in the residential property pay their own utilities. That wouldyield an additional $400/month. Rents on the 2 units in the residential units would be increased in the next year, as they are at least $100 below market.

My dilemma is that improvement of a roof does not add major value, and given this is considerable cost, I am not sure if it’s still a good deal. With nothing else going wrong, it would take over 2 years of cashflow to pay for the roof.

Is there another way to look at this or structure the deal that would make sense?