All Forum Posts by: Garrett Hawk

@Donald Hlava We have done these projects and are in the middle of doing several right now. Here are some things to consider:

1. Zoning- is it zoned to be multi-family? Do you have to apply for a variance to change the use?

2. Electrical- How many breakers are assigned to each room. Most likely each room has a 20 amp breaker. If you don't plan on upgrading the panel and re-running the wire, you will have to use a modified kitchenette set up with low voltage cooktops and apartment fridges. You will most likely have to educate tenants on limited electrical use at one time to avoid tripping breakers. 

3. Fire alarm system- Low frequency sounders will required for a R-1 to R-2 use change. This may require a re-running of the electrical wires to a lower gauge.

4. Extended stay- These projects work well if you have incoming revenue through the hotel side of the business and gradually transition to multi-family. Most of the time, a well occupied extended stay will produce more cash flow than a stabilized multi family. 

5. RUBS- Once the project is transitioned, inserting a utility sharing/ RUBS system will alleviate utility costs.

6. Additional income streams- We usually like to use the common areas and vending as additional income streams on the property. Our onsite laundry and vending can produce an additional $3k/mo in cash flow on a 100 unit building.

@Blake Dailey You are correct. You need to know your market and if these units will meet tenant criteria. Our tenants are lower income and are just looking for affordable housing. Since we include all utilities, it is a drawing factor for our units. 

@Sri L. Hello! This is a business model we specialize in. I see this as a very viable opportunity to help solve the affordable housing crisis that we are approaching. 

This is our basic buying criteria:

1. We purchase these in secondary/tertiary markets in the midwest. We look for markets where affordable housing is in need and the city is seeking outside investors for these conversions. 

2. We purchase independent hotels that are currently run as "extended stay" hotels that are rented out weekly. We keep the extended stay function of the property active to keep income flowing in. If we can maintain 70% occupancy, then we are still cash flow positive with nice profits.

3. We finance these projects through seller financing on 3 year terms or through our local banks. Our typical leverage is 75-80%.

3. Our targeted rents are $625/month for a studio and $800/month for a 1 bedroom. That comes with all utilities including cable and internet and is furnished.

4. With these rents, we need to purchase the property at less than $30,000/door. 

5. We also remodel all the rooms with water proof rigid core flooring, install kitchenettes with 110 electric cooktops, range hoods, and a mini fridge. (If they want a full size fridge, we up charge.) We GC our own projects and can finish our remodels for $2k/room.

6. Refinance options are available. We have not refinanced our projects yet, because we plan on bringing our units to a large non-recourse lender.

Let me know if I can help with any other questions!

Hello Guys,

Just thought I'd share my really cool B-day present I received this year from my wife!

We are both multi-family investors specifically favoring workforce housing. For my birthday this year, my wife found a 38 unit property for sale in a town we'd been investing in. This property was owned by an investor who was trying to get out of town. This investor was also known in town for owning a 2015 McLaren 650s that he had traded in to his private lender to catch up on mortgage payments. My wife approached the lender and asked if he would add the Mclaren to the mortgage if we took over the property. He agreed and she signed over the mortgage and gave him a check for $1.

Best Birthday surprise yet!

38 unit is a solid, property that will cash flow $2500/month with about $15k of cosmetic rehab.... and the McLaren is a beauty!

@Nichole Stohler Thanks for the response! It is an independent operation.

Investment Info:

Other buy & hold investment.

Purchase price: $2,100,000
Cash invested: $1

Property had a 38% vacancy with an owner that refused to put money back in the property. Property was advertised for 3.1 million. The seller owed 1.98 million. I offer 2.1 million with the condition of assuming the loan in place.
He accepted the offer and we took a private money loan of 175k to pay the difference to the seller and 55k to fix up the vacant rooms and make them rentable. Property is cash flowing 8k/month with 30 vacancies. Property will be refinanced in the summer of 2020.

What made you interested in investing in this type of deal?

The high rents per square foot and demand in the market.

How did you find this deal and how did you negotiate it?

The deal was recently taken off the market. It was listed at 3.1 but I was told the seller needed to sell it.

How did you finance this deal?

We assumed the mortgage in place.

How did you add value to the deal?

We updated the down rooms with new furnishings, killed bugs, and laid new flooring.

What was the outcome?

Still increasing occupancy and attracting better clientele.

Lessons learned? Challenges?

We are looking into acquiring our own heat treatment machine to take care of bed bug issues in the future. Also, weekly room checks are not only required but needed to prevent further issues.

Investment Info:

Other buy & hold investment.

Purchase price: $2,100,000
Cash invested: $1

Purchased a 105 door extended stay hotel property.

Property had a 38% vacancy with an owner that refused to put money back in the property.

Property was advertised for 3.1 million. The seller owed 1.98 million.
I offer 2.1 million with the condition of assuming the loan in place.

He accepted the offer and we took a private money loan of 175k to pay the difference to the seller and 55k to fix up the vacant rooms and make them rentable.

Property is cash flowing 8k/month with 30 vacancies with increasing occupancy. Property will be refinanced in 12 months to pay off both loans and will be a strong cash flow producer in our portfolio.

Update: We have a second extended stay under contract

What made you interested in investing in this type of deal?

The high rents to square foot

How did you find this deal and how did you negotiate it?

The deal was recently taken off the market. It was listed at 3.1 but I was told the seller needed to sell it.

How did you finance this deal?

We assumed the mortgage in place.

How did you add value to the deal?

We updated the down rooms with new furnishings, killed bugs, and laid new flooring.

What was the outcome?

Still increasing occupancy and attracting better clientele.

Lessons learned? Challenges?

We are looking into acquiring our own heat treatment machine to take care of bed bug issues in the future. Also, weekly room checks are not only required but needed to prevent further issues.

@Yonah Weiss I currently have 380 doors. 130 are sfrs and the rest are made up of larger multifamily deals. Based on cash flow, I have been able to make more money on my sfrs. However, if I’m looking at what has appreciated faster and has the best debt option, it has been the larger multifamily projects.

Hello Meredith, 2% rule indicates that the monthly rents will be 2% of the purchase price. For example, a 30k house will rent for $600/month. 

@Mike Dymski agree 100%. It’s never been easier to purchase real estate from an investor or owner occupant standpoint. If you can’t buy a home now with interest rates this low and economy this good, not sure when you will be able to.