All Forum Posts by: Buck Dabill

@Buck Dabill, is it zoned to be multifamily?  That would be my first concern.  Particularly by converting to two beds, you are not talking about likely having kids who will go into the local school, which may be at capacity.  

From there, 850k rehab seems light, since that works out to $65/psf, and you will likely have all new HVAC and ducting needed, since most hotels are single room units, and most code requires HVAC service into all rooms.  Likely need new roof, etc.

Lastly, you are making 120,000 gross per year.  In all reality, this will net 60k/yr on a near $900k investment.  or a 6.67% stabilized yield.  Not bad, but if mid-scale (I am assuming you will have 20 units, give or take) after conversion, are trading at 8% cap rates, you are upside down.  If cap rates for assets are below 6.67%, you will have profit potential.

Hi Buck,

Just some of my random thoughts,

Resume Speed Iowa probably not, Anahiem Calf, maybe. WE ARE IN ESTERN MONTANA , 8,000 POP

Is this an area where people want to live stacked one upon the other, or would they rather 'Spread out". THE OTHER LARGE APPERTMENT BUILDING IN TOWN IS STACKED.

Who will be your renters, local working people or Section-8, and how long will it take to lease up to stabilized where you can get a long term financing in place. I FIGURE ABOUT 6 MONTHS TO FULL CAPACITY, JUST A GUESS...MY RENTAL MANAGER SAYS "PEOPLE ARE BEGGING FOR 3 BEDROOM PLACES AND 2 BED SHOULD NOT BE A PROBLEM.

What if Lease up to stabilized takes longer--how long can you "Weather the storm financially". GREAT QUESTION...ONE I HAD NOT THOUGHT ABOUT...I SHOULD BE ABLE TO COVER A YEAR. IS THAT ENOUGH IN YOUR OPINION?

What about lead paint, asbestos, lead pipes, etc...IT HAS BEEN INSPECTED AND WE ARE WAIGHTING FOR THE REPORT BUT HE SAID IT LOOKS LIKE FEW IF ANY ISSUES...

Does your estimate include a realistic bid on the electrical upgrade as apartments will probably require more electric amps than the hotel rooms have, and is that available from the Power Company, or will they up charge you to run extra service from point X to your address (if it's available at all). WE ARE LOOKING INTO THIS....

30 years abandoned, I assume the blacktop is pretty much rubble and will take a full replace. ITS IN DECENT SHAPE

Hotels have long in wall A/C units, 2 bedrooms will probably require mini-splits. Are there mini-split installers in your area that can work up high on your buildings top floors. ITS ALL ONE LEVEL..WE PLAN TO DO A COMPLETE GUT

What about heat and hot water, how will that be handled. IT HAD HOTWATER HEAT...OUR PLAN IS TO REPLACE IT WITH ATTIC FORCED AIR UNITS. ALL THE ATTICS HAVE EASY ACESS, WALKING/STORAGE. FOR HOT WATER I PLANNED ON A TYPICAL HOT WATER HEATER IN EACH UNIT....IS THERE A BETTER OPTION?

Can the buildings existing plumbing and the line(s) to the main street waste line handle the bathrooms  and kitchen sinks (1952 lines might be cloggy and an endless source of complaint) have sewer scopes been done to see what they look like. GOOD CALL...I WILL LOOK INTO THIS

Will you be required to put in fire escapes (as well as other modern fire equipment)--has that been budgeted for. I HAD NOT THOUGHT OF THIS

Have you talked about tax abatments yet with the governing authority. I HAVE NOT....WHAT IS A REASONABLE REQUEST?

Does the area show a shortage of apartments, or will it take a long time to fill units when they turn over. MY RENTAL MANAGER DOES NOT THINK IT WOULD TAKE LONG TO FILL

Hows the roof (and the real roof underneath--the wooden one), how many layers of roofing are on it, how many can be on it and still get financing. ROOF DECK IS GOOD ON ALL THE PARTS WE ARE KEEPING, ONE LAYER

Does it have some unique history, ie. did Frank Sinatra always stay there, people think its haunted, once owned by the Beatles, etc.. NOT SURE

Who was the last Hotel Chain to Flag it and why did they shut it down (Legionaries Disease, poor economy, expensive structural issues, etc...) NOBODY SEEMS TO KNOW...MOST SEEM TO THINK WHEN THE MAIN HIGHWAY CHANGED PLACES IT WAS LEFT IN THE DUST....

Just my 2 cents.  Thankyou for your insight...it has been very helpful!  

@Buck Dabill, is it zoned to be multifamily?  That would be my first concern.  Particularly by converting to two beds, you are not talking about likely having kids who will go into the local school, which may be at capacity.  

From there, 850k rehab seems light, since that works out to $65/psf, and you will likely have all new HVAC and ducting needed, since most hotels are single room units, and most code requires HVAC service into all rooms.  Likely need new roof, etc.

Lastly, you are making 120,000 gross per year.  In all reality, this will net 60k/yr on a near $900k investment.  or a 6.67% stabilized yield.  Not bad, but if mid-scale (I am assuming you will have 20 units, give or take) after conversion, are trading at 8% cap rates, you are upside down.  If cap rates for assets are below 6.67%, you will have profit potential.

Does the 850k repair cost included interior and exterior repairs? Seems like it could potentially be a solid deal. Have you reviewed the annual tax statement on this property? Taxes are an expense that is often overlooked by investors. 

It sounds like a pretty stellar deal. How are you financing the purchase and repair? That will tell you both your after-repair cash flow, your holding costs during the renovation, and whether you need to use that new ARV to refinance out at the end and get your capital back.

It might be worth running through the BRRRR calculator here if you haven't already.

@Buck Dabill is it zoned or can be multifamily? In addition, the rehab may cost more than 850K with additional things that may pop up. New roofs, plumbing, flooring etc. Deconversion projects are definitely exciting and have potential. Best of luck!