I've searched a bit and have not come across a post that quite fits an investment opportunity I have been looking into.
At the bottom I put a cliffs notes version of the building/surrounding area (probably could have shortened it up, and maybe I'm looking at too many external factors - however let me know)
My thoughts - building would be good structurally/mechanically - located in the downtown core - building is already built out into 4 offices and reception area main floor with a kitchenette/half bath
2nd floor has 7 offices, 2 baths, 2 storage rooms
2 entrances into the building, street parking on 2 sides, building is located across from the local courthouse
(Could potentially turn the upper floor into a couple of apartments or one large apartment - rent for 800-1k a mo for one large apt, however rehab $$ would climb - city would be more than willing to change zoning for this and encourages this type of arrangement in the historic buildings - ie office bottom floor, apt top floor)
$60k Purchase Price
$20k Rehab budget
Potential gross income $2800 per mo (7 offices $400 ea)
Guesstimated Pro Forma
-- $33600 Gross Income - 7 offices $400 ea
(5040) 15% Vacancy
(2400) Property Tax
(6000) Utilities - figured $500 per mo/gas/elec/water- think this is high though
(1680) Cap Ex
(4980) P&I Pmts $60k loan 5.5% interest - 20 year amortization
(4800) Janitorial - $400/mo - this would probably be lower
$ 6200 Cash Flow
I think I could improve on the above cash flow, not sure the Insurance is 100% accurate, could possibly increase gross income if I have more than 7 offices etc. Thinking this would be a near worse case scenario
Thinking I could possibly do interior upgrades, modernize the office into something appealing, (could be as simple as removing the paneling and exposing the brick, redividing the offices, updating the baths etc) and then rent out individual office spaces and charge $400-600 a mo for each office space - They'd be gross leases and I'd take care of all utilities, janitorial etc -- would not provide any onsight receptionist, fax machines etc -- each person would provide their own office equip -- I could potentially provide office furniture if needed, plenty of good used stuff to be found locally
Thinking at a min 7-8 office suites, possibly more -- Per agent and my knowledge of community/research online I dont think a setup exists like this to attract possibly an IT person, a 1 man/woman business such as an accountant etc. I think there would be a demand for it. A buddy of mine lives in an even smaller town a bit closer to Wichita, and he rents out space in a similar setup -- the landlord accidentally turned it into a co-office type of setup - building was an old bank he got really cheap at an auction (think $60-70k) and he was getting around $2k or so in income from it, renting it out to a hair salon, my buddies online business, an accountant, one tech guy etc and he really didnt do much to make the inside appealing at all other than paint.
After reading through some of what I posted below do you think this is risky? Any glaring things I really need to research etc? Could I potentially be heading in the right direction? I think if I wanted to exit, not sure how quickly I could move the building, obviously if it's fully leased it would be more appealing to other investors, but more than likely if it sold for $100k after I did my upgrades and had a decent cash flow only small time local people would be looking at it.
-- 3780 sq ft 2 story office building (office was previous use)
-- Built appx 1900 -- think it's brick, or block with some sort of facade, possibly limestone as that is common in the area -- has a basement as well with partial crawl space -- good soil in the area
-- Appears to be structurally sound - no issues - however needs further investigation, the floor joists are likely large old world pine/oak or other hardwoods shipped in so they should be good as long as no previous termite damage/dry rot
-- Basement professionally waterproofed 15 years ago - should be no water issues, we've had lots of rain locally (more than we've had in likely 10-15 years) and basement supposedly has not leaked, think it's limestone/concrete -- Building also surrounded by Concrete -- water should not be an issue
-- Per agent this week there will be a new roof put on (Flat Roof) at a cost of $17k
-- Asking price $60k
-- Has been occupied by an accounting firm for I believe 40-50 years - they owned the building and have left as they merged with another local accounting firm and moved to another building
-- Dated inside -- lots of paneling, probably dim lighting, HVAC is kind of dated
Potential Downsides/Other Pertinent info
-- Likely will have low or nearly non existent price appreciation, other than upgrades I'd put in -- I probably wouldnt factor it in any of my figures
-- Lots of ranching/agricultural, oil/gas, wind energy activity around - city has the closest major grocery store/Wal Mart to lots of people located in more rural areas within a 1-2hour driving distance -- town is important for that aspect
-- Located in a small community - town has appx 12-15k people, however it is a bedroom community located off of a VERY well maintained interstate and it's only 20-30 mins drive from the City I live in that has 500k people -- The city is a good "Clean" town if that makes sense, very nice community gym close by
-- Building is on the downtown core - right off of one main arterial and 1 block from the other -- no plans in the future to alter traffic flow etc --- Lots of money has been put in by the city/local govt to maintain the downtown area and make it a very nice walkable area - with lots of little shops, antique places, a couple cafes etc
-- A local company in the refining business recently moved the majority of their business there from Wichita and has put a lot of money into this community -- large donations to the college and elsewhere (they make additives and are a nationally known brand -- have been around since the 70's - only way they go down is if we go away from the internal combustion engine - dont see that happening in the time I'd own the building)
Shane your plan sounds pretty solid! With the surrounding area, I could see plenty of opportunity for some of the subcontractors that are getting some work with the Government to possibly need a vibrant office space fully equipped to suit their needs. Small community to me (depending on demographic) could mean lots of people working from home that would benefit from the "co-working community" and usage of space that is not a coffee shop or local library. I wholeheartedly believe in the co-working model and with the right set-up to target the right audience, you can create a new phenom in Wichita! Good luck!
In your studies of co-working spaces, look into Alex Hillman http://dangerouslyawesome.com/2014/06/how-i-turned...
Shane I stumbled across space near the old town area (Wichita) and was considering a similar idea. That space was 7000 sqft plus asking $57k. I still like the idea but the monthly costs (office condo) are over $1400/month for maintenance and utilities. Still love the idea but it's pretty unfamiliar territory.
Depending on where you are talking about Regis is coming to Wichita soon and will provide numerous services along with cheaper office space.
You are correct John -- Regus is already here -- they have a location near K96 and Rock rd in the office park there N of the Hwy and will be putting in their marque location at the old Union Station presently being rehabbed by Occidental Company Downtown. (Think 2 buildings to the east of Union Station)
I have a different model in mind vs what Regus offers -- I would think of there model as a Cadillac high end hotel if you will with all the amenities, what I have in mind is more like a dorm room or hostel type setting, would offer less amenities, etc...maybe to borrow off of Brandon Turner's term House Hacking -- call it Office Hacking.
Most people in the Wichita area have failed to make offices appealing and put little money into the property - I think if you make the place more appealing and modern (easy enough to do with some simple changes to most places) that alone would have you stand out. I'd call a lot of these office owners slum lords if you will - no updating, and still looks you're stepping into a 70's or 80's time warp, bathrooms look embarrassing, etc. I'd shoot for B+ office space -- nothing like that really exists here - either B- or C/D office space or A to A+. Even what they call A/A+ space boggles my mind sometimes, the quality of the finishes and craftsmanship is sub-par sometimes IMO when you really look up close.
Interesting buy. I own a building where we do something similar with 11 individual offices up and retail below. I'm lucky, Regis has just come to town but they cater to a different cliential so they have not affected me. Probably a few things you should consider before the co-working route.
1) throw up a craigslist ad advertising the co-working space and all of the amenities/pricing you are planning. Push it a few times and see what your response rate is to let help you decide if it is viable. Depending on how much you supply to the co-work space it can be really hands on.
2) because of the number of offices we have there is constant turn over, be ready to be more hands on. I don't like to let other people screen my tenants because I don't get as good of tenants. I have found I can generally figure out who is going to work and who isn't before they've even applied and before my credit and background check. I might have brought on more of the work because I started out with month-to-month leases but people like the flexibility mindset-hey if I don't like it I can leave. This year I started transitioning to a month-to-month or term lease option where the term lease rent is cheaper. It's been 50/50 what people choose.
3) my biggest mistake, and one that I feel lucky about still is that I didn't plan multiple exit strategies. You list housing as an option. Why not lease out the entire building to a single tenant? You mentioned basement and courthouse. How about legal file storage for area attorneys? (Ok many are probably electronic by now but they still always have a ton of paper)
4) lastly, make sure you have that price point dialed in if renting offices is the way you want to go. Test it in the craigslist ads. Our building is in a much larger town I'm pulling in 150-375 per month per office which puts me close to $19 psf in a town that gets no where near that type of rent in other buildings. I can do that because the offices are small providing an a lower overall price point. How do your expected rents match with the local market?
Good luck it's exciting though.
Thank you very much Mark for your input. Appreciate the insight.
I've thought about the CL ad, however it is a small town, and small enough, if I did it as a test, then later on put out the ads for real, I'm unsure how that would go over as the same eyeballs/potential tenants may not want to respond if they thought it was a ploy again. Small town people can tend to be leery of Cl anyway around here. As for market - there really aren't many offerings like this in Wichita, and none that I know of in the surrounding communities which would be what I would want to focus on. There's enough Ag, Wind, Oil/Gas and other misc folks, this might work for or simply others who may not want to commute into Wichita.