All Forum Posts by: Jesse Vipond

Yes! Thanks @Katie Neason! Zoning is an issue that we haven't had to deal with in our multi-family acquisition in the last year and a half, but I suspect that could be an issue for this redevelopment project. The building was used as a school up until 2014. The listing says it is "mixed-use." It sits in a primarily residential neighborhood, but there are several manufacturing plants within a 1 mile radius. Although we haven't been told directly by borough officials, our real estate agent believes that "mixed-use" could be meant to allow both residential and commercial uses. Once we determine exactly what it entails I will be sure to get back to you, as it sounds like you've got some experience to share on that issue. Thanks so much, Katie!

Thanks for the insights @Joseph Scorese! I've been speaking with the general manager of a major commercial construction firm (who also happens to be a good friend) and that was also his primary advice: make sure all of the environmental factors are addressed. A school built in 1936 obviously presents some challenges in that department. 

One question I have is about the timeline. I understand every project is unique, but in your experience, how long did each phase of the residential project you completed take? For instance purchase period, planning/evaluation, design, and construction. I'm really trying to wrap my head around that timeline in order to educate a few potential investors. 

Thanks again, Joseph! Looking forward to hearing from you again.

Hello Everyone! It's been a little while since my last discussion post, but every time I've turned to the BP Pro community for help or advice I've walked away a much smarter investor for it. Here's my situation:

My partner and I own three multi-family properties with 9 total units. We are also trying to work in a few flips to help pay for even more multis, as we have a very advantageous lending agreement with our bank. However, we have always had our eye on working a bigger redevelopment project. We live in Northeast Pennsylvania, and the rental market is quite good. There are also several major energy companies building new power plants in the area, bringing 100s of new construction jobs, and 100-200 permanent jobs. 

Recently, an old 22,000 square foot elementary school building, which had been in use until 2 years ago, went on the market. We know that this will be a great building for a 15-20 apartment complex, and that if we don't jump on it, someone else certainly will, as several other local developers have had great success converting old government and manufacturing buildings into similar high end rental properties already. 

So, I'm looking for any advice I can get from investors who have worked on similar projects. We are scheduled for a walkthrough next week with a commercial contractor and an architect. I also know that we will need to work closely with local and state officials to navigate the zoning, code, tax incentive, etc. issues that come up. 

Does anyone have any advice, or know any good resources that might help us work through this process from business plan, to building plan, federal/state tax incentives and grants for rehabbing historic buildings, how to get on the Historic Register, construction, and finally through marketing and rent up? 

I'm super excited by this prospect, and can't wait to hear everyone's thoughts. As always, thanks everyone!

Jesse

Wow, @Account Closed, this is an incredible list of very good ideas! Dare I say a Masterclass in creative deal making. And I suspect that there's a lot of potential in many of your suggestions. The seller of the property is a friend whom I've known for about 5 years (his wife and my girlfriend are very close). As I mentioned earlier, he is very successful in other business and financially comfortable regardless of this property, but I believe the property is costing him money, and perhaps thousands a month, because I think he bought it pre-crash, overpaid for it, and now can't generate nearly enough income to cover the expenses. My partner and I need to sit down with him and establish exactly what kind of trouble the property is in, and what he's looking to get out of it (in other words, exactly how we can help solve his problem). Once we determine what he needs and what we might be able to provide, I will be sure to reference your post for potential solutions. Thanks so much, this info will be valuable to me both now, and I'm sure in many future deals!

Thanks @Karen Margrave! I will post two pics here at bottom (they are just exterior, but give a better idea of the property). I believe the building to be in good condition, and I think all of the apartments were very recently updated. The building is in the "downtown" area of a small, but rather distressed city. However, the area around the building is nice, walking distance to many amenities, and very near a brand new Best Western Hotel & Conference Center. I think you're right about the financing. My partner and I have a very favorable lending arrangement with a supportive local bank. They have about $400k available to us pre-approved ($100k for immediate same-as-cash LoC). However, our terms are always commercial (25% down on appraised value, 15 years). 

I actually believe the owner might be underwater on the building, as it's not currently generating nearly the income to cover his expenses, and he's mortgaged almost to his asking price. He said if he can net enough to pay off the mortgage he'd be happy. Yet for us, because of our commercial terms, and because all of the utilities are paid by the owner, the property probably cash flows negative $10k. Of course, that's without renting storage space in the pole barn, and parking spots.

That's a really good idea, too @Joel Owens. I'm sure they've got much more accurate information at their disposal. This property only has one retail space, which was a drug store for years who recently moved into a new, bigger building. But a leasing company would certainly be able to help me determine whom I'd be able to market and rent that type of space to.

@Gino Barbaro, that's usually the type of analysis I like to use, and have used, when evaluating the properties I already own, i.e., how much income is the property currently generating. Applying that method to this property and the max purchase price is substantially below his ask. Again, I'm pretty sure he over paid for the property and is going to find it nearly impossible to sell it for even close to what he owes. That said, he is a friend of mine, and he's very successful in other businesses, and very comfortable financially, so I have thought about some kind of seller financing or partnership opportunities. 

Thanks everyone, 

Jesse

Greetings! I'm looking for advice on how to evaluate the numbers on a mixed use investment property so I can make a strong, logical offer. So far I've only closed on traditional multi-family properties, and I've gotten pretty good at crunching those numbers and determining income potential to help me make my best offer (and find my max price). However, a deal was brought to me this week that is a bit bigger, and more challenging to analyze/evaluate. 

The property consists of a large commercial store front (currently vacant), three apartments (a 2BR and 2 studios, all currently rented, all utilities included in rent), a 30x40 insulated/heated pole barn (owner currently uses to store a boat, cars, and an ATV, but could be rented as storage space) with two overhead doors, and a parking lot with 10 spots. The main building has a 4 year old roof, and a brand new boiler. I've gotten a rough Income/Expense statement from the owner, and on his end, it's profitable, though I believe he owns the building free and clear, and therefore doesn't incur a mortgage payment.

My question is: how do I go about determining the intrinsic value of this property? There are many unrealized rental opportunities, but would obviously take time to "rent-up," or get full rental value from. To me, that time has to be figured into the offer price. 

Any advice, or insight from owners of atypical investment properties would be greatly appreciated! Thanks BP Community!

@Deborah BurianThanks for the insight. I, too, believe desktop Pro will be more than adequate for our needs. It's just going to take practice and perseverance, as it can get quite frustrating for a novice like me when the program "misbehaves," and by that I mean my own human error causes problems! 

Also, I just wanted to let y'all know that I just posted my first BiggerPocket's Blog, "Year In Review!" It's just a casual glance back at my first 365 days as a real live "real estate investor." I'll link it below. If you've got a few minutes, check it out! 

"Year In Review"

Thanks again, everyone! 

@Gary YtreeideThanks for the advice! It's good to hear perhaps a does of reality. So often people want to focus exclusively on the possible riches, when there are real risks involved when sums of money this large are involved. 

We've got a nice lending arrangement with our bank that works much like the scenario you mentioned. They gave us a LOC, and after we buy/rehab a property, they roll over 75% or the newly appraised value into a traditional mortgage (for buy and hold properties).

Over the last few days we've thought about many different ways to structure an offer, and we met with the seller today to propose two options. For the sake of updating this thread, I'd just like to let @Brandon Gentile, @Lesley Resnick, @Zachary Betters, @Brian Gibbons, @Steve Vaughan, in on how our proposal went:

We kept it very simple. He is into the property for $51k, we estimate repairs between $42k-$52K, and according to comps, our repairs would put the resale value between $135k-$150k. Our first option, and the one we think works best for everyone, is for him to hold the note until resale (though we'd have legal arrangements made that give us co-ownership to protect our rehab costs), we would pay for and complete all of the work, and we would divide the profits in thirds (myself, my partner, and the seller).

Our second option would be to buy the property outright, but he said he would want $65k. We would still do the rehab, and keep all of the proceeds form the sale. This is less desirable because of the addition of closing costs for us to acquire the property, but at $60k-$62k, we would still be in play to make approximately $25k-$40k profit. 

He certainly is open to Option 1, and going to strongly consider it over the next few days. He was also very impressed by our "professional approach and presentation," which I attribute squarely to the great advice from the folks on this thread, as we've never done a deal like this, either a rehab/resale, or outside of our agent and MLS.

Thanks again everyone, and I'll keep you all posted on how things progress.

PS: I'm including the information we presented to him (with very rough estimates of repair costs). If anyone has any input on these numbers I'd love to hear...

1524 North Webster Ave.

1200sf 3BR/1.5BA/detached 2 car garage

This property is located in a very desirable section of town where real estate prices have stayed slightly above average compared to the town at large. We view this property as an ideal first home for a young family with one or two children.

Comparable properties in the neighborhood range from $120k-$150K in 2010/2011 to $130K-$165K, and averaged $88/SqFt per sold home over that period.

Needs:

• 1.New Roof - $7000-$10,000
• 2.New Windows - $4000-$6000
• 3.Kitchen/Wall Removal (bigger eat-in kitchen) - $6000-$10,000
• 4.Upstairs Bathroom (gut/replace) - $2500-$4000
• 5.Update Electrical - $1000-$3000
• 6.Patch/Paint Throughout - $1000-$2500
• 7.Update Front Porch (Curb Appeal) - $1000-$2000
• 8.Floors (Sand/Stain Downstairs) - $1000-$1500
• 9.Floors (Replace Upstairs) - $1500-$2500

Addition: (6’x15’ Mudroom/Laundry/Half Bath off rear of house)

• This addition would help attract absolute top dollar by providing space for a first floor laundry room, an additional first floor half bath, and mudroom at rear entrance from garage. These amenities would separate this property from competing properties
• $100/SqFt = $9000
• $120/SqFt = $10,800
• $135/SqFt = $12,150

Heating: Every comparable home featured natural gas heat, and it would be advisable to upgrade to natural gas. I believe the existing boiler can be retrofitted to operate on natural gas. Estimates on upgrading to gas would depend on numbers from UGI. To be considered…

Total Repair Costs: $34,000-$53,650

With these repairs, we believe this property can demand top sales price for this market, which would put it in the $135k-$155k range.

• $112/SqFt @ $135k sales price
• $129/SqFt @ $155k sales price

 @Lesley ResnickI think that's hitting the nail on the head! My partner and I spoke at length about the pros and cons, both for us and the seller, of partnering vs. buying outright and rehabbing with our LOC, and we determined that our strongest position would be to offer the exact structure that you suggest. We're meeting with him again this afternoon to talk about what each party is looking for, and suggest this as the best way for each of us to maximize profit. Thanks so much for your suggestion!