Wholesale deal needing pricing evaluation

[Jordan Northrup]

I need some help in evaluating a wholesale deal that was initially pitched to me. I don't have any experience in this area, hence my posting about it. 

The property is a vacant hotel along the eastern sea shore. The town has good growth with lots of tourism/professional traffic. I'm told that the sellers want $2.25M for the deal. I asked the wholesaler how they arrived at that number and was told that the owner based it on how much he paid for it, back taxes, and what he needs to repay investors that he borrowed from originally. From what I can gather, the seller is elderly, underwater, and needs to get out as clean as he can. Since the property is vacant and has no NOI, how would you go about putting together a valuation methodology to decide if it's even worth investigating?

[Evan Polaski]

@Jordan Northrup, is the hotel the highest and best use?  Is it convertible into another use without tearing down?

Depending on end use, your value could be as little as land value, less clearing cost.  

If it is still viable as a hotel, you are going to need to build your discounted cashflow model. What is your stabilized NOI. What will it cost and how long will it take to get it stabilized. What type of return are you needing to make this investment of time and money worthwhile and worth the risks. And that will back you into a purchase price.

I will say, anytime I hear "it is priced based on what was paid for it" I get very skeptical that you are dealing with a reasonable person.  As you likely know: what I pay for something has absolutely NO bearing on the value of the asset when I want to sell.  Just because I bought Bitcoin at $65,000 a coin doesn't mean I will be able to sell it for $75,000 today.  Real estate is no different, other than it continues to cost money each month.