Financing hurdles for a Motel Opportunity that fell in my lap

3 Replies

So yesterday I stopped by a client/friend to chat about a flooring project at his house and the discussion came up about a old motor court that he bought and fixed up on the beach and i said if you ever think about selling the place you talk to me first, just throwing it out there to him. he said he has been thinking about selling as he has too many projects out there as it is. he is a big local investor doing bigger projects. basically it comes down to it has about 500k in rentals each season, price in 2.9 mil, has had a major recent update, its ocean front, repeat business is through the roof, if fills a much needed niche that has been over looked in my community. (mostly huge vacation rentals here where you need 4-10 other couples to rent a giant beach home) while this is about 20 units, but it varies from 2 bedrooms to 4 bedroom cottage units so i has a little bit of everything. here is the awesome part, he does little to no advertising or anything, not even a good webpage just a infrequently updated facebook page and he pulls rentals like that. so there is definitely room for growth. I don't think there is much deferred maintenance but the units are old but i know everything about construction and such so Im not scared of the old part and own a flooring company, which is the best part cause thats the only thing the place needs is new floors/ interior paint. 

I have NO money to put down but would hate to invite an investor on board for the down payment (which will prob run 10-20% right? i have been looking to get into the game for a year but in an area where property values are inflated because of being a resort area its hard to find any cashflow properties. but running the numbers every such way its a really nice investment to get my feet wet and develop a vacation rental hospitality business that i could excel in while picking up valuable real estate in the process.

how would you tackle this loan wise? I dont have the hard details but first few years i would be on board for the most part developing systems and filling in the shoulder months with Air BnB and social media and trying to find the roof on prices for the main season. i know very little about commercial loans and options out there, with my rough math a 15 year loan at 5% would definitely be doable and would like to be aggressive in building a portfolio with a few of these types of investments as there are over looked opportunities here. 

Commercial loans are not for 5% but prime + rates. These can be recourse or non-recourse loans. Some are with high balloons payments at terms some are not. They will need the balance sheet for the property itself and last two years tax statements. I recommend you contact local community bank to start with to familiarize yourself with commercial lending.

@Jason Riddick You have no money down, no experience, don’t want a partner, and think a bank will loan you $3MM? Just say it out loud and see how it sounds. But let’s pass over that insanity for the moment. You’re buying a business with a motel. Sure, real estate is a primary driver but it’s a business. So you need to think about a small business loan as much (or more than) just buying the physical property. And if you did buy the property you don’t just need $750K (25%), you need reserves (typically 9 months of PITI) sitting in the bank, etc. So if you did get 5% and a 15 year loan that means you need another $162K in a bank account. You’re up to $912K at that point and then you have appraisals, origination fees, inspections, etc. Bottom line is that your “money need” is +/- $1M.

Originally posted by @Jason Riddick :

So yesterday I stopped by a client/friend to chat about a flooring project at his house and the discussion came up about a old motor court that he bought and fixed up on the beach and i said if you ever think about selling the place you talk to me first, just throwing it out there to him. he said he has been thinking about selling as he has too many projects out there as it is. he is a big local investor doing bigger projects. basically it comes down to it has about 500k in rentals each season, price in 2.9 mil, has had a major recent update, its ocean front, repeat business is through the roof, if fills a much needed niche that has been over looked in my community. (mostly huge vacation rentals here where you need 4-10 other couples to rent a giant beach home) while this is about 20 units, but it varies from 2 bedrooms to 4 bedroom cottage units so i has a little bit of everything. here is the awesome part, he does little to no advertising or anything, not even a good webpage just a infrequently updated facebook page and he pulls rentals like that. so there is definitely room for growth. I don't think there is much deferred maintenance but the units are old but i know everything about construction and such so Im not scared of the old part and own a flooring company, which is the best part cause thats the only thing the place needs is new floors/ interior paint. 

I have NO money to put down but would hate to invite an investor on board for the down payment (which will prob run 10-20% right? i have been looking to get into the game for a year but in an area where property values are inflated because of being a resort area its hard to find any cashflow properties. but running the numbers every such way its a really nice investment to get my feet wet and develop a vacation rental hospitality business that i could excel in while picking up valuable real estate in the process.

how would you tackle this loan wise? I dont have the hard details but first few years i would be on board for the most part developing systems and filling in the shoulder months with Air BnB and social media and trying to find the roof on prices for the main season. i know very little about commercial loans and options out there, with my rough math a 15 year loan at 5% would definitely be doable and would like to be aggressive in building a portfolio with a few of these types of investments as there are over looked opportunities here. 

Here is another angle that you can approach this from.

Depending on how much your friend owes on the property he can act as the bank on the second loan at 20% - 30%. You can get a first hard money loan at 80% or 70% and now you have 100% financing.

Since you can do the work yourself you'll have to figure out comps (commercial appraisals cost 1.5K and up) and if you can increase the value over a 1-year period to 20% - 30% then you can refinance and pay off your friend completely. Or if the numbers make sense and the term is over 1 yearlong you can hold on, stack your chips and pay down the 2nd mortgage aggressively.

You have options, but you'll need help and the numbers must make sense or else you'll find yourself in a deep hole you can't jump out of.

Good luck and keep us posted.

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