33unit building rebah. Am I crazy or is it something feasible?

[Andrea Galvez]

I am interested in a building with 3 comercial spaces, and 30 appartment units on top (around 34K sqft). The building needs a full rehab. It looks structurally sound in the outside, but it has holes in the roof, floor, and theres a lot of water damage in the inside. The electrical, plumbing, and HVAC will probably need to be updated. I have enough money for buying it, but I would end up with 50K to start repairs, and I will need license contractors for this proyect. 

I was thinking about fixing the roof, inside structure and maybe 2 comercial spaces to get started and then keep fixing some units, rent them out, fix some more, rent them out, and so on until is finished. I could start funding it with $110K/ year (current income), and then use the rent from the fixed units.

I have experience doing rehab on small multiple unit homes, but this would be something new to me. SO based on your expertise, am I crazy? or is it something feasible?  

[Khari F.]

Hi do you already have experience with rehabs or property mgmt? How are you financing the purchasing?

[Sarah Hatton]

Hi Andrea, 

I think the biggest questions here are around your experience with rehab, liquidity situation, and time constraint. From your description it sounds like you are planning to fund the rehab from your personal income, something I would not recommend. Your capital constraints will slow the speed of your project and how quickly you can rent out the spaces and make returns. Second, projects almost always go over budget and this one seems to be no exception (water damage, holes in roof, floor, HVAC, etc). Lastly, you are going to be time constrained working a 9-5 and trying to work alongside this project. It will create stress and force you to make lifestyle sacrifices to move the project along. Personally, I would start on smaller multifamily/commercial spaces first and work your way up to bigger projects! 

[Andrea Galvez]

Thanks for your opinion @Sarah Hatton

Yeah, I have some rental properties and I would use the money from those ones plus my 9-5 income. 
I have demolished completely and done full rehab, including eleclical, plumbing, HVAC, siding, windows, etc all by myself. So I have the knowledge, but I dont have licenses so I will have to hire a contractor, and thats one thing that throws me off, because I'm running my numbers and it seems like its going to be a project for some years, but it would give me more equity and cash flow than smaller buildings (collected during the same years). But like you said, it always goes over budget, and with contractors, I dont know what could happen.  

[William Harvey]

This sounds like a good plan on paper but I think it has a chance of getting majorly derailed if you run into some additional problems while completing each unit incrementally. Why don't you find an equity partner and come up with all the cash up front so that you have ample reserves to ensure that if you hit a snag that you are able to keep the project going? Versus running out of money and stalling out. 

[Bruce Woodruff]

Doing a 30 unit full rehab is going to run you something like $800k or more. Is that comfortable for you?

[Andrea Galvez]

Yes, I bugdget it for a little over a million over the years. And I didnt consider the option of a partner because I dont know anyone who is willing to take the risk and/or money to help finincing a big part of it. 
But I have made my decison, thank you so much for your thoughts. 

[John Warren]

@Andrea Galvez about four years ago, I was crazy enough to put a 19 unit full gut renovation under contract here in Berwyn right outside of Chicago. I got a killer price on the deal, and I was very fortunate that I brought in a capital partner with a lot of business experience. His experience and capital, and my boots on the ground and leasing carried us through. I would not do something like this on your own, but if it is a solid deal I would definitely find a capital partner to help. This is a very hands-on project, and one that is best completed quickly versus slowly. 

Even if you end up passing on this deal, don't get discouraged and stop looking for deals. A deal of this size can make you an incredible amount of equity appreciation and can set up your life for ongoing cash flow through good management of the asset. 

[John Myers]

The big uncertainty here seems to be the cost of the rehab.  I recommend you find a contractor to price out the repairs as you plan. ie some portion over several years.  After you get the estimate, increase it by a contingency factor that you think is appropriate.  Probably at least 20% or more, this will help cover the unknowns and inflation.

The contractor may charge you to prepare an estimate, however look at cost of the estimate like an insurance policy.  It is critical to get all your numbers right.

Finally, this will be very time consuming on your part.  Make sure you have the time and patience to take on a project like this!

[John Mocker]

Andrea,

From an Insurance persective, you may have some difficulty in getting the correct coverage.  Many carriers that write the Renovation Builders Risk coverage do not like rehab on occupied buildings.  I'm sure you can find a market but I would advise starting early and working with an experienced Independent agent.  They will have the time to shop it and makes sure the coverage during rehab is correct. 

[Wesley N.]

did you get it? I saw one like that near Harrison Park

[Michael Davidson]

The flaw I see in your logic is this...who's going to want to rent out an apartment that has holes in the roof, water leaks, questionable HVAC, faucets don't work/toilets backed up (God forbid overflowing onto the renter below them), electrical is a hit or miss...thought I was charging my phone but hello this outlet doesn't work. And then you expect top dollar from these tenants? No, it won't work. There's a reason this property was offered to you. I mean just do the math. HVAC alone for 33 units is going to put you in the hole. And you think plumbing is cheap? Guess what, electrical is even more expensive because you have to cut through the drywall to run electrical, then patch it back up, paint it, etc. 50K ain't enough for all that I'm sorry. Not for 33 units.