All Forum Posts by: Chris Winterhalter

@Michael Dunn 

Are you looking for a rental or flip property? It takes a lot more time and effort to properly comp a flip property than a rental property. One of the most important skills you can learn is accurately valuing properties both on an as-is and after repaired basis. You can work with experienced real estate agents that are currently selling properties in your farm area. You can also work with experienced appraisers who understand and know the area. However you need to spend time learning how to properly comp a property on an as-is and after repair value basis. There are a lot of threads and books on this topic. It's extremely important to understand each block, street or subdivision. You need to evaluate what are the lowest sold comps in the area over the past 6-12 months. Evaluate each sold comp and compare it to the prospect property. Carefully look at days on market. You can adjust up or down as necessary. When looking at the ARV you need to look for solid sold comps that are similar to your property (on an after repair basis). Look at the days on market, condition of the property, where the property sits, etc etc. Look at as many sold comps as possible. Also look at the pending and active comps to look at your competition. How long have the comparable houses been sitting on the market? If there is a house at 150k active which will be similar to your prospect property after renovation then evaluate why it hasn't sold. Has it been on the market for longer than 90 days? If it has then it is probably over priced. Drive the comparable properties to get a feel for the differences compared to your prospect property. Where is the neighborhood trending? You can look at comps over the last 24 months to give you an idea what is happening in the neighborhood. Next you need to calculate your rehab costs (soft and hard). This is also an extremely important skill to learn. However if you are not experienced in rehabbing properties you can always work with experienced inspectors and contractors. Make sure to work with investor friendly, licensed and insured contractors. From there you can put together your pro-forma with financing, holding costs, etc etc.

@Account Closed 

I'm confused by your posts.  The OP is purchasing a 47 unit building with average rents around $500/month.  I'm not quite sure how you came up with your numbers?  

@Bily Elliott 

Can you clarify 24k income? 24k in NOI? How much maintenance did they expense? Verify the capital improvements over the past three years as well. The other posters have done a good job at outlining the problems in the deal. Area is definitely a big problem and something that you cannot fix. However if the area is a solid C area then it might be okay. It also depends on how it is trending. The other large issue is deferred maintenance. A 1920's building either requires a solid rehab/gut or a lot of recurring maintenance. I'm not promoting the deal however if you could separate the utilities (or most of them) and pass on the expense to the tenants you could definitely help your bottom line. With that being said be extremely cautious of this deal. Is this an area you are interested in investing over the long haul? If it's not then I would pass. Good luck!

@Derek LeBlanc

Partnering with a more seasoned investor might be your best option. IF the 15 unit complex is truly a deal then I would connect with others in your area who are interested in this type of project. Connect through BP, REIA, Meetups etc to establish connections. I would also change the way you phrase your situation....stating "currently I am broke and have no credit" is not a turn on for other investors. Talk more about what you bring to the table. Do you have a plan for the project? Putting together a solid business plan for the project can go a long way to potential partners. Most experienced investors want to see value on your end (besides the property).

If you have no experience, no credit, and no money you will not get a loan by yourself.  Even a hard money loan/bridge loan.  On top of that how would you get out of the loan?  

@Dan Stevens 

Is the area in decline?  Or is it improving?  If it's in a redeveloping urban area that shows promise then you might want to hold onto the lot for the long term until the area turns.  What are the annual holding costs?  You might have to hold on to the lot for 5, 10 or 20 years to realize a significant gain.  I'm not sure how much the lot is worth however it might not be worth very much.  Holding onto the property would be a long term bet.  How did you acquire the property?  How much did you pay?  

You mention that it's in a residential area but near a busy retail corridor.  Is the lot on a main road with a lot of visibility and traffic? Or it is set off in a residential neighborhood?  

@Swat Khan 

Office might be a good product based on the building shell however you need to make sure the market demand is there to support the space.  I've looked at a few vacant schools over the years and couldn't make the numbers work.  It really depends on the area, property values, and land cost.  More than likely you will need to gut the entire building and start from scratch to design a product that meets the markets needs.  That might not be the case in which @John D. 's idea might work well.   However generally a school type building is going to require a large gut rehab to properly repurpose.  You could end up spending more than the cost of new construction depending on the building.  

With that said I think it can still work.  I think properly determining the needs of the market are extremely important.  From there you can evaluate the cost to repurpose the building and either pursue or move on based on how it pencils.  What is the square footage of the building? What is land value in the area? What does quality, renovated/new office space lease for? Where are multi-family rents in the area for new/renovated product? I would assume it has a large parking lot already.  What is the prevailing cap rate in the area for new/renovated office product?  How about multi-family product?  Does it sit on a busy street?  

A quick update....

We closed and funded on Friday....it was an insane day and we didn't fund until about 3 minutes before the wire cut off.  Overall everything went well besides a few last minute fiascos.  I will break down the deal in a week or so when I get caught up on a few things.  I want to thank everyone for their support.  Now it's on to the next deal!  

@Anthony Gayden You are 100% correct...it takes so much time and effort to put together a deal.  Thanks for the support!  

@George Lekas

How rural of an area and what are the drivers in the area? Was it previously branded or independent? Are you going to keep it a hotel? Is a hotel the highest and best use for the area? How many stories?  Interior or exterior corridors?  Elevator?  Do you have experience in hotels?

I have a hotel construction company and I can tell you that purchasing a vacant hotel (depending on the area & municipality) generally requires a sizable capital injection because of several reasons:

• As with any vacant commercial building you will need to bring up the building to code if a renovation is being completed. This can require a large investment in fire/life/safety, mechanical systems, elevators and ADA compliance.
• No established hotel with recognition...it always takes time to ramp up a new brand in a new location.  
• You could be dealing with massive mold issues if the walls have vinyl wall covering (like most hotels).  

As far as value it really depends on the type of building, deciding what is the best brand for the location and building type, and construction/redevelopment costs. Hotels generally trade based on cap rate however smaller hotels/motels generally trade on a multiple of revenue. Determining the value can be difficult however you would need to work with an experienced management and construction company. You may want to get a feasibility study performed or pay a consultant to help you with brand choice. The STR report can paint you a pretty accurate picture of what the market is doing. However if it's a small market with very few comparable properties then that can be difficult. Full service hotels in rural areas are very difficult because of the overhead it takes to run a full service hotel (depending on the drivers). Select service hotels are generally preferred. A three story Hampton Inn with an elevator is much easier to run than a two story full service Days Inn with a restaurant. Make sure to answer this question...what are the drivers in the area?

@Joshua Dorkin 

I wish I was going!  I'm going to Brazil on my honeymoon in August so I'll just miss it.  TV will have to suffice for now.