I recently came upon an interesting opportunity to purchase an 8000 sq. ft. 20 bed 7 bath retirement home that I plan to turn into 6 apartments. I figure I can get the property for $210,000 plus closing costs, spend around $95,000 in repairs, new construction, appliances, etc. for a total of around $315,000 and have a property worth $450,000 on a bad day, which I would plan to rent out. Most hard money lender sites that I've visited are strictly single family fix and flip or at most 4 unit. The ones that are willing to do bigger buildings or loans over $250,000 aren't playing in my state, at least based on the information on their websites. Does anybody have any experience with anything like this? I assume they have to be licensed in a specific state to do business there? Alternatives?
Also, side question. Being that I would have a $450,000-$500,000 finished property with $315,000 into it (70% ARV) is there any reason that I couldn't just refinance the hard money debt into a conventional commercial mortgage with the 70% LTV and no down payment? Seems to me they get the security they want, I don't have to put the extra cash in. Or am I completely crazy?
Thanks in advance!
For the record, the property is actually in Minnesota.
happy to connect further if needed. I make hard money loans in Colorado and Minnesota making loans larger than $250k and more than 4 units. The biggest challange in a senior living facility is that the repairs/improvements made are not the highest and best use from a value standpoint, rather a business model, there is zero value in the business model to a lender if there is a default. So although the numbers pencil, all of the value in this business model is the business not as much in the real estate, because time property would need to be rehabbed again for resale. Further issues could also be in zoning and use of said property.
Thanks for the reply! I actually looked at your webpage, but I got the impression you didn't work on properties larger than 4 units. I would absolutely agree with that. The property isn't worth hardly anything if it can't be rented. With that said, the area has around a 3% vacancy rating and there is usually minimal issues with finding tenants. The property is also in a great location, roughly equal distance to each of the three universities in the area. In regards to zoning, the current owner already has plans drawn and approved to turn the property into a 6 unit, with approval to build an additional 6 unit structure on the property. From a hard money lender standpoint, what concerns do you have?
@Travis Sperr ? Sorry, trying to get used to the workings of BP.
$95k seems really light, to turn a huge house into 6 separate apartments. With their own entrances, kitchens, baths, and all utilities separately metered? At $16k per unit? That budget seem really light.....
It very well could be. Its a rough figure. It does however figure appliances, cabinetry, countertops, new walls, new electrical wiring, new plumbing, all new flooring and sales tax among other things. I go to look at the property tomorrow, hopefully with my general contractor. But for the mean time, I need the info about the hard money opportunities.
There are plenty of hard money guys that would lend on a well thought out and documented project, to an investor with experience and enough skin in the game. I'd worry at least as much about every single detail of your plan, your permits, and your budget as I would finding HMLs. This sounds like a somewhat complex project.....and the cost of metering alone could blow your projected rehab budget out of the water by tens of thousands of dollars.
I'll certainly look into the cost of metering once I get a better feel of the property layout tomorrow.
Yeah I'd most likely eat up 12k-14k of your budget per unit in hvac/electric alone and that depends on a lot. Plus I'm cheap compared to a lot of guys.
@Dustin Smith I may have read your first post incorrectly, it is currently a retirement home and will be converted to apartments - non retirement? If that is the case this is type of deal I would look at, my biggest hesitations would be your experience in like projects and understanding the refinance into a commercial loan/timeline to do so. The construction budget at first glance does seem light, which could change your numbers and exit significantly.
Yes, thats the case. Absolutely, the numbers could be light, but they are rough estimates right now. I'm hoping to take my general contractor to look at the property today to see what he thinks and get a better grasp on the project. I'd certainly make sure the general could get it done in our timeframe and that the commercial mortgage broker was on board before working with hard money. I certainly don't want to get into something I will not be able to finish or exit.
@Dustin Smith Why do you want to convert it from its existing use to 6 apartments? I've heard from other investors that senior living facilities are cash cows when you have the right management in place. What does your comparative analysis look like? Just curious...
I guess I never really considered it. I know absolutely nothing about retirement communities. The comparative analysis as far as anticipated rent or property values? I really wish I could tag people on my phone...
@John Whittle I don't know much about HVAC, but the property is already equipped with baseboard heat. What would be your recommendations for ventilation and AC?
@Travis Sperr I talked to my commercial mortgage broker today and he said it sounds like something he would be on board with. My appointment to look at the property got switched to tomorrow, but my contractor is coming to look at it, so hopefully he'll have some insight into the time frame we're looking at.
I'd also appreciate any insight on project costs. I still need to get final information for costs, but this is what I'm thinking.
6 units. 4 units 3 bed 1 bath 1200 sq. ft. 1 unit 4 bed 1 bath 1500 sq. ft. 1 unit 4 bed 2 bath 1700 sq. ft. Assuming only the 3 bed 1 bath units, I've figured for each unit:
- $1,000 in flooring
- $1,000 in doors and trim
- $100 in paint/stain
- $2,000 in appliances, including stove, dishwasher, refrigerator/freezer, microwave/vent and water heater
- $2,000 in cabinetry (Home Depot pre-fabricated)
- $1,500 in electrical work
- $4,000 in construction
- $1,000 in plumbing
- $1,200 in miscellaneous
- $900 in sales tax
I know things like flooring, appliances and cabinetry are probably light, but I have a bulk deal with Home Depot that helps quite a bit. Anything I'm missing or that is out of line? I can basically spend up to $230,000 on the project and still be ok, but that takes me out of the hard money arena.
I hope your scope of work is a lot more defined than you are posting here. When you get into re-configuring spaces there is a lot of work involved. Some of the things you could run into are:
Plumbing relocation, venting, drains, supply lines, etc. This could cost anywhere from +/- $400-800 per fixture depending on your market and existing conditions. Is this a slab on grade structure, or does it have a basement?
New framed walls, drywall & finishing, maybe insulation, trim. New walls need to blend in with the ceiling and old walls. You may need to add egress windows, which penetrate the exterior. You will have to satisfy the minimum electrical code requirements within the new and existing walls in the newly configured space.
Electrical meters, as was mentioned, panel upgrades, sub panels, etc. You should ventilate bathrooms and the possibly the stove. Lighting will have to be re-configured.
Is the baseboard electric or hydronic? You will have to supply heat to any new spaces, and may have to modify runs. Are you thinking of a ducted AC system? Is there a space above or below to run the ducts? With your budget, maybe they supply their own AC.
Are you changing the use group classification per code? Are there any energy code requirements for this level of remodel in your area? What about fire protection, fire separation walls, fire alarms, CO detectors, or even sprinklers?
How is the roof? Are there handrails and guard rails required anywhere? Are the means egress illuminated? Do they need to be? This can get very involved.
I have a feeling that your contractor is going to make you fall over when he tells you how much a job like this will cost.
With all of that said, I'm a big fan of using what is there to it's maximum advantage and being very creative about things like this. You may be able to do some amazing things with what is there, but you HAVE to know what you are doing because mistakes in the design will cost money and will add up quicker than you can imagine. I wish you all the best!
@Robert Valenti absolutely. I really appreciate the insight. I'm anticipating a shocking number, but I figure I can put $230k into the rehab and still make adequate cash flow. But that kills my hopes of a hard money rehab. I guess we'll see tomorrow how everything is configured and what ways I can try to save on extra work and cost.
Well an update on the deal. Looked at the property yesterday with my GC, and he thinks he can easily do the whole thing for under $200k. I found out today I can likely get into the property for $165k plus closing costs. Based on the same numbers I would use to analyze any other investment, I would be a buyer at $560k.
Separately metered? Or will you be paying the utilities for all your tenants?
I'd be sure to get another couple GCs to check the scope of work, and quoted price.
@John D. he thought he could do all the meters for $6k. I'll certainly have the project bidded, but if he will guarantee me that it will be under $200 in my time frame and I won't be responsible for anything over $200k (appliances and cabinetry, etc. included), I'd do it in a heartbeat. It may be over what I could get for it, but if that works I'll basically get the property without a penny invested.
@Dustin Smith I have to agree with @andreas mizra. Why would you change the property from a retirement home into apartments. The next 15 years 8000 baby boomers a year will turn 65. There is a tidal wave of people that that will fall into the rental space you would be operating in if you left it as it's current use.
$1k per meter? Including rewiring, upgrades, panels, and meters per unit?
Did you call your utility company?
What about water meters?
I don't have a ton of experience here, but that I do have is telling me to throw a red flag faster then if there was a fatal crash in the middle of the Grand Prix.
@John D. I'll be paying for water. I know that the cost of a monthly water bill is nowhere near worth the cost of adding the water meters. Plus tenants will likely use roughly the same amount of water regardless of whose paying for it, because frankly it's cheap. You have to remember I'm in ND/MN, not Cali. Luckily all of the wiring appears to be up to code and centralized enough that he figures there won't be that much additional expense. Plus often times the electric company will provide the meters.
@Richard Allen it actually turns out it can't be a retirement community anymore. The commercial kitchen is on the lower level, and to be up to code, the ceiling would have to be raised 2 feet. I have a big project on my hands now. No way am I touching a 2 foot building lift for a rental situation I have no knowledge of or desire to be part of... The legal issues with assisted living alone are enough for me to say no way, Jose.
Fair enough, I would certainly keep clear of that as well, as you were, Cary on.
@Richard Allen I do appreciate the ideas though! Up until @Andreas Mirza mentioned it I hadn't even though about it. I didn't find out about the code issues until yesterday. Frankly the guy that owns it doesn't deserve it in the first place. He didn't do any homework on what he was trying to do and it's clear by visiting the place that he was not up to the challenge of managing the place.
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