Small Hotel - Sec.8 Boarding House Possibility? - Posted by Steve

import · June 23, 2001, 10:30am

Posted by JT - IN on June 23, 2001 at 13:26:11:

Steve:

“Brutally honest” is my middle name.

You mentioned converting into a duplex, @ 2000 sq ft each side. Those would be extremely large units. Could you make more units out of the design/layout? Like 5 or six units, cause with 4000 sq ft., you would have the space. However, unless you are getting a great deal, in both price and terms on this place, why convert a building? Why not buy one that has been built for such a use? How would the ARV compare to that of existing 4, 5 or 6 unit buildings, in your area? Could it be that you would spend a lot of time and $$, to justify a value that would equal 100% of FMV? Unless you can end up at 75% of FMV, all in and all done, then I wouldn’t consider such a project. There is risk here, that you possibly haven’t perceived, in converting a buidling to a multi-fam unit. Many pitfalls to dodge and swerve. Be careful not to get tooooo much experience on your first deal.

Compare FMV on existing 2, 3, 4, 5 and 6 fam units, including FM rents, and see where you end up on this bldg, estimating conversion costs and estimated rents. See which looks better, dollar for dollar, and consider how you would exit this investment, post ocnversion, should you wish to.

Just a few more things to think about…and good luck with the evaluation!

JT - IN

import · June 23, 2001, 10:30am

Small Hotel - Sec.8 Boarding House Possibility? - Posted by Steve

Posted by Steve on June 23, 2001 at 10:30:49:

I recently found an old hotel with 13 bedrooms listed at $134,900. It has been on the market for a while and I can easily get $50 per week per bedroom. Does anyone know in general if sec.8 allows this type of arrangement? Logical thinking would indicate that if it were a hotel, it would be suitable for housing. It is a 2-story and at first appearance you would think it is a house so I assume it is set up as boarding-house style. Any thoughts, questions (even the obvious), or experience would be appreciated since this will be my first income property. I would like to rent to people who are all similar so they all have common ground, I do not want to engage in discrimination and feel that it is unjust, however I do want to minimize any possible friction between tennants and/or fights since they will be sharing a common kitchen and living room. That will be my biggest challenge… that is after negotiating the sale of course

import · June 24, 2001, 2:13am

Boarding House Possibility? - Posted by Jason_NOLA

Posted by Jason_NOLA on June 24, 2001 at 02:13:16:

How about leasing it to a non-profit agency for use as a half-way house for mentally retarded citizens/ assisted living facility for the elderly, etc.
I am sure you could get top dollar for something like this. They would handle the tenants/ licensing/ management/ and the “clean-up” that you are concerned with…

At $134,900, you could get premium dollars and they can handle the rest…
Jason

import · June 23, 2001, 11:06am

1st Investment Prop. - Maybe NOT - Posted by JT - IN

Posted by JT - IN on June 23, 2001 at 11:06:08:

Steve:

Let me admire your optimism and desire, before I disect this “animal”, called a boarding house.

You mentioned that this will be your 1st income property. I would think, that such an agressive investment type, as a boarding house, may be a little too encompassing for a 1st property. Do you know of anyone with a similar property, that you could speak with to get a bit of feedback on the labors and management headaches of such a property ? They are numerous, and once you get in, this will be difficult to get out, if you then decide that this cup of tea, is not for you. Why not take things a little more slowly and surely, with something like a SFH or duplex. See if you like the management issues of tenants, first. This will not be an accurate comparison still, due to the hand-holding that will be required of the rooming house type of tenant. Way more WORK!

I doubt that Sec 8 will allow this type of rental, but am unsure as to that issue, however, I think there are many more issues for you to consider, such as:

Logical thinking - if it was a hotel it would be suitable for housing. Not necesarily, without some major remodeling. Check with local zoning on this, in order to be sure that you could get an Occy Permit for that number of tenants on site. Maybe no problem, but be sure before you proceed further.
Rent to ppl have similar common-ground. You will; they will all have many of lifes issues to deal with. This is a lot like having 13 children, and you know how siblings get along. You will likely need to be the referee in many instances. (or maybe the warden).
Friction/Fights: It will happen no matter what is said or done. There will be theft and jealosy, due to close living arrangement, resulting in altercations. Just the way it will be.
Common LR & Kitchen: Who cleans and cares for common area ? I guess you do! Do you have the tenacity for this project?

This seems more like social engineering, than REI. I would take a good look at this one, before proceeding further. Let’s see, at $ 50 bucks a week, times 13, that is $ 650, times 4.3, is $ 2795 per month max income, times 85% for vacancy and uncollectables is $ 2375, times 65% after taxes and utilites is a net of $ 1545 per month, just appx.
Now if you were to go out and buy 2 SFH you could net about the same, without all the headaches, and just keep on investing your way to wealth by repeating the same process.

Obviously, my advice is to run the other way as fast as you can, but that is just the way that I view things…

JT - IN

import · June 23, 2001, 10:40am

Re: Small Hotel - Sec.8 - Posted by BillW

Posted by BillW on June 23, 2001 at 10:40:01:

Steve,
I’ve never heard of Sec8 doing week to week deals. I think they are primarily interested in longer term.
Depending on where you are and the makeup of the area, you might contact local or state agencies to see if they have any needs that might fit your available units.
In general though, these type operations are very management intensive, with higher than average vacancy rates. Do your research carefully and especially check out any other successful operations in the area and see how they do it and who are their tenants.
Good luck,
BillW.

import · June 23, 2001, 12:47pm

Re: 1st Investment Prop. - Maybe NOT - Posted by Steve

Posted by Steve on June 23, 2001 at 12:47:12:

You do bring up some good points I initially overlooked, issues like cleaning the common areas is a good one - that’s a biggie! Utilities will also be difficult to determine as well. I will make work of contacting owners of similar properties. I did not look into this too far and do not have very much time invested in researching the details so be as brutally honest as you like. I could turn it into a 2-family with relatively little work but I will have to check into that a little further. There is 4,000 sq. ft. so 2k each should be plenty. Just another idea. What else could you do with so much space? There has to be more uses than I am thinking of.

Steve