The hotel conversion - 31 units for $0 out of pocket.

Welcome to a live edition of Multifamily Strategy, uh, that tends to happen on Multifamily Strategy Live. We are here at the hotel conversion today. We're guys, we're gonna give you guys a walkthrough, actually show you some of the building, the units, what we're working on. We have come a long way on this. Cody, want to join me in the office? We can talk about how we actually structured this darn thing. Let's do it. All right, let's go. All right guys, so we are here in Moses Lake, Washington.

This hotel has been a disgusting turd on the main road for a long time, but now we actually made it quite nice and we've got a lot of people moving in. Yes, we do, but not moving in as guests. Why is that?

Oh well, because, uh, we are turning this into multifamily. They're not just hotel guests, they they're there now, long-term stays.

It's just their home, which is a lot better way to structure this deal.

A little bit about the deal, uh, this was off-market, uh, we purchased it for $1.6 million. And how much we've done around so far, we've spent about a quarter million. Okay, a little bit left to go, but we went into this thinking we were probably going to do $1.6 million and a $300,000 renovation budget. So we are still under our initial budget, Fantastic.

Never happens.

Uh, yeah, that does rarely happen. We actually guessed this one right. Uh, this is the old office. This is currently nothing, so we haven't done really any renovation in this room. So we'll show you the actual hotel. When this place was originally purchased, it was gray and red, and they had a lot of missing paint, a lot of damage just around the entire campus, which was gross. Um, you kind of see the whole thing, quick little look at it, and then yeah, I'll follow you. You guys can follow us, uh, through some of the units. See how we actually put this thing together. Uh, broker reached out on this, by the way. This price, when we're done with the project, we're gonna be all in about $1.9 million, probably a little bit less than that. And this should appraise, I'm thinking around $2.6 million. Cody, what do you think?

Yeah, $2.6 million is pretty conservative. Perfect.

Simple units, but actually pretty big. We went and changed all the flooring, which is a major upgrade. Uh, this room, when we first bought it— you guys saw any of our initial pictures— this was lime green. Like, the whole thing was lime green and nasty. Two-bedroom unit. We're finishing up in here, but we've done a lot. Bathroom is still unfinished. You guys can see that is, uh, what we call a gross tub, but it's a salvageable tub. We can do, uh, what's that called? Re-sealing? What's the word for it? We're gonna resurface that tub, make it look beautiful again. It's not there yet though. Popping into another unit. We're in unit 104. By the way, 31-unit building. That used to be the manager suite.

Prior owners lived here.

Again, there we go. We'll get the lights on in here. Floors, okay, these are clicked together. I like glue down. It seems to do better against water damage. That being said, click together does look better, and we do have that in this whole entire unit. They're small, they're hotel rooms. But if you're doing affordable housing— sorry for the, uh, everyone's getting motion sick— uh, if you're doing affordable housing, this is perfect. White walls, nice floors, blank canvas, $850 a month, which in Washington state, very cheap. Again, bathrooms have not been fully renovated, but this is the canvas that we've had to work with. A lot of these units, and I don't mind sharing this, we had a few squatters and definitely had some drug dealers in here. Those problems have since been resolved, which is a very good, a very good thing to do. If you buy one of these buildings, you want to jump right on that. What I've noticed, if you have those issues, you want to do two things simultaneously. You want to start trying to get rid of them, but in addition, what you want to do is start investing the money in doing the projects here. When there's construction crews, when they're I see someone really active. It tends to be inconvenient to be a criminal when there's a lot of renovations, activities, police are around. We try to fix these up really fast. It resolves the problems actually typically almost immediately.

And now we're in a different unit. So this unit does have a bathroom, which all of them do. It's got a view of the lake way over yonder, and we've got this kitchen we have to redo. This kitchen This doesn't go here, but we're redoing the floors. We've got cooktop, microwave, which we're going to trash that. We got a little fridge over here, and this is one of the basic units, but it's got lots of light, natural light, which is nice. We've gone in and redone all of the plumbing in these bathrooms because that definitely wasn't working. No.

And we're making all the units look like this.

Some of them have a little different color floors. This one's a little different, but still got all the lights up above. Still got some painting to do, but, uh, great location. If you can see that water's right over there, Michael's on the lake, and the main attraction, we're here.

So it works, we've made it. Okay, uh, let's talk a little bit about how you find deals like this, because we have— and this is one of my favorite things We don't spend any money on finding leads ever. Uh, no skip tracing, no cold calls, no, uh, we don't have like a call center doing stuff for us, no lead lists, no mailers, no any of that. Uh, here's how we find all the deals. This was a relationship, and it was actually with the broker. It doesn't have to be owner relationships, so that is heavily our favorite way of operating.

But the best way to find them is this little map, and I always talk about find the big roof. That's a big roof. That's another one. That's another one. I bought that. Those are more big roofs. We're talking with them. It's free.

We got this actually driving the city. When we went into Moses Lake, we've driven around. Uh, both of us have a Tesla, so you actually look on a Tesla map too. But you look at these big roofs, I'm like, hey, we haven't seen this building yet. When we were starting, Cody and I did a lot of just driving around while we were already working on properties and going like, oh, I didn't even know this building existed. Then you hop on public record, you find who owns it, and away you go. You start networking. I'm gonna have fun, Cody, while I sneeze. And Cody, keep, uh, keep talking words.

Do the thing and I'll talk the words. Oh, someone said Mr. Clean. Yep, I am now bald. I have joined the shiny head club with Dion. Someone said Mr. Clean.

Dude, you have a great head shape. That is a blessing.

If you're gonna lose some hair, I could have had a less fortunately shaped head. So this is another unit we're coming in painting. We are not done. We've got one coat on most of this, but we're gonna get that one rentable this weekend, which is super exciting. And a couple more that we finished up. We finished 116. We're gonna have to finish 215. Seen in a little bit. This one's nasty. Do you want to take people through the nasty unit?

I don't even know if I want to go— oh wait, okay, well now we have to. Yeah, well everyone stay tuned, you're gonna see it totally jumped out.

So this is what a finished unit looks like without a kitchen. Some of these have kitchens, full kitchens, some of them have kitchenettes. All of them will have kitchenettes in the future, but we're too poor for that, so, uh, we didn't do that yet. But this is what a finished out-of-kitchen is going to look like. This is actively being marketed for rent. We got to get rid of this. This is old. I forgot to get that, but we'll get a new one. But very basic, clean, presentable, and our goal is to give people that are on the come-up or sometimes downsizing a place where they can have, call their own. They don't have to share it with a bunch of roommates. And as soon as they're in, we don't raise the rent. We can keep their rent where it's at because we can pay our bills. We underwrote correctly, and that allows us to cash flow without jacking the rent. This is a unit that needs paint still, but on our way back, we'll actually check out the really junky unit. I forgot we got to do that. Yeah, give that to you.

Yeah, if anyone wants to call Sarah, she's a— there's some, there's some Black stuff on the walls. We painted, uh, we painted over a lot of stuff, but people like to decorate their units with a lot of words.

Breaking into our own place.

That works. Uh, yeah, so here's a good example. Uh, before we started, you get units like this. That is what we call the nasty.

You said that right as you pointed at me.

Gross. What's even worse, look at this accent wall.

Decorative.

There's still poop in here. Oh, we're not going in there. Okay, uh, still have some poop left in here from prior tenants. Uh, this is what we call unfinishing. We have done zero work in this particular one other than the floors. Other than the floors, beautiful. Moving ready. We'll slap some paint on that, paint over that toilet, paint the turds, turdlets. Someone's gonna— someone— no one isolate that audio. Someone's gonna— someone's gonna post that. Landlords paint over the poop. The poonit. Yeah, this is the type of— I mean, these types of projects, I promise you, they're in every single market. This is again originally a hotel. The zoning for this area is multi-family, which is why we're allowed to do this. But if you didn't know, there is no maximum stay to a hotel. So even if you don't do the rezone, you can keep people here. We're going to show you the super gross unit. I'm holding my breath through this. This is going to be an observe. This will be a Oh God damn it. Okay, I'm not turning lights on the bathroom.

It smells bad.

And there we go, no breath. Um, okay, so When you buy stuff like this, that may be what you walk into. I will tell you this, that was not the worst unit. I would say maybe in the top 3. Some of these things have a lot of hair on them. The only way to make money in real estate is certainly not doing these heavy value adds, but I'll tell you, if you want to do a deal where you make $1 million, if you're starting with no money, you often find things like this. We won on price so massively, and I mean by like a million dollars because the lift was that. Not everyone wants to take on the risk. Not everyone wants to take on the project. Not everyone wants to have to paint over the turds to get these things done.

And once we redo all the kitchenettes, if we add those all in in the next year, this place will be worth north of $3 million, which is more better. And those kitchenettes only cost $2 grand, which is great. Yeah, we just don't have any extra money. So you do what you can afford to do., and we could afford to buy it because it was zero down. Oh, this is the worst tub. I forgot to show everybody. Oh, not good.

So project isn't done, but as you can see, tons of progress. We also, uh, you can kind of see it from here, we slapped a new roof on this bad boy which was leaking. We put new lighting everywhere. These are actually kind of cool. I'll show you guys these. These are just a few bucks. You take out the old growth lighting, those screw right into the original sockets. They look much nicer. And then on every single beam, we just added little solar lights. So at night, solar powered, it looks good, it's much brighter, all the beams light up. It's the little stuff that doesn't cost a lot of money, gets a lot of mileage for what you can do on these projects. But that's what we're doing with this project. We painted, uh, painted some much nicer colors. We found the deal. Um, let's, uh, let's dive into one of these units. Let's talk about how we actually got the capital for this, because I mentioned we bought this for $1.6 million. It's going to be worth, uh, $2.6 million right now.

Yeah, right now, before we do more. Yeah, we gotta get the poo out.

If you get this thing 100% done, we'll get it $3.1 million-ish.

Yeah, $3.1 million, $100,000 a unit. Yeah, that's what this one's looking pretty conservative like.

Okay, so how did we find the money for this?

Well, I had no money, so I asked Sugar Mama. No, so we ended up pitching a hard money lender, private company out of Seattle area. He said, hey, we've got all this upside, we believe in the location. I own property, literally I own two properties right there, basically across the street. And at the time, I think I owned that with you. Mm-hmm. I sense I bought you out on both of them.

Yeah, Cody has more real estate now.

Oh well, Christian has more money. You get to adjust your pieces. So we own the location and we are water— I know we're water adjacent. The water is literally right there and we've got great locations next door. This was the worst property in the best location. And it was the biggest property in the best location that we could buy. There's nothing this size right here on Broadway. So we pitched a lender. We said, hey, we've got a plan. We've got a lender who will take it out when we want to refinance, cash you out. We don't have any money for this, but we have a vision for this project and we have a plan to execute on it. So they ended up funding $1.8 million. Originally, they only wanted to give us $1 million. Which would not work. Then they said, well, what if we just gave you the full $1.86 million? And we were like, okay, we'll do the $1.86 million.

More better.

But then they called us up and said, what if we give you $1.8 million? Because if we're going to give you all the money, we want to make sure you have money to do the reno. And that was better. So we actually got cash at close, six figures at close, to buy this project, fix it up, and get it well on its way. And the nice thing is, with a $2.6 million value, we have enough equity million in debt to refinance it and have no money in the deal. More better.

Yeah, not every deal, by the way, needs to be a burr. So this entire building, if you're trying to scale, this burr is going to work and it's going to make a lot more money than your duplex.

And I promise you, this can make enough money to retire you. One deal is enough to retire you if you buy big enough. This deal refinance can cash flow $7,000 a month net.

Now if you guys have any questions you want to ask about this, post in the chat. This could be a shorter live because we are in the middle of painting, so we will get back to work here at some point.

Painting the box?

Yeah, but I'll toss up a couple. We don't have a ton of questions yet, but if you guys have any, post them right here because seriously, anyone can do this project. How is this? Mr. Clean?

Yes.

But do you guys sub out the work, use a GC, or DIY?

Yes. Yeah, we do all of it right now. We're painting, we've done one coat, and we're just trying to get the big picture stuff done as much as possible. And we could pay someone just a little bit of money and do the touch-up stuff. But like right here, we painted over this. Should we, uh, fill all these holes first?

Yes, we'll get that on the touch-up side.

But this isn't Class A, and it's definitely not Class B. We're Class C, and entry level, we're at the bottom of entry level. So we want to be nicer, cleaner, more presentable, safer. And higher quality than our competition down the street. And there is some competition down the street of a similar asset class. Nice thing is ours is better. So we'll come in, we're getting most of the paint done. I'm coming in tonight, fill those holes, and then we will paint them again with a brush.

And we've done some of the floors ourselves, but most of them were subbed out. Uh, things that were not subbed out was like the interior paint. Uh, Cody's done some of the wiring and those lights I showed you guys earlier. That's Christian and Cody special. Cody ran over to Lowe's, we put them all in. Very cheap. Yep. Contractors, like an actual GC, did the roof, and the actual GC did this. Actually, I'm really happy with the color, but this blue and beige that we went for the whole campus, black railings, all of those things were done by an, again, general contractor. Some of the stuff like cleaning, we've done a bunch of like the smaller unit turns, so A lot of the floors that were laid here were just— those are our own subs. We sub directly, we didn't get a GC for that. Dervis, uh, there's new signs that have been a bad, uh, okay, that's— he's been drinking his own urine. I didn't need to post that one on the screen. I didn't read it before I posted it. Everyone, this is what happens on a live. Uh, gosh, thank you, Dervis. Remind me, remind me not to answer Dervis's, uh, things. Zerker. My God, the elusive Cody. Good to see you guys. Hey, man. Welcome back, man. Good to see you. We're in the same town at the same time. Need tips on how to add broker's fee?

Well, the broker got paid on this one, so we got $1.8 million in financing and the broker collected 4% on the purchase. He got from the seller $64,000. Now, when you're buying something, you've got what's called the settlement income statement, and I'm not going to jump super far into that, but it's going to itemize all of your expenses for the buyer and the seller. The seller had a cost of a brokerage fee. We got 100% plus financing. So $1.6 million less the broker fee, less excise tax, less title and escrow, any tax proration that got pulled from the seller's $1.6 million, and the broker got paid $64,000 out of that $1.6 million. Anything above the $1.6 million of the 6% in our fees, because we have fees for our loans, went to us. But broker fee gets paid out at closing.

River Jerker says, like the video, guys. Well, we like having you here. Thank you everyone for watching, by the way. I have to apologize, I missed Wednesday's live. We go live every Wednesday at 3. Um, I forget what I was doing. Oh, I was at our resort, the Robin Hood, trying to, uh, hire all the staff. We fired everyone and I had to rehire. Uh, that was a large project and and so I apologize. This is our, our makeup for that. Ta-da! They say you look so cool today. There we go, there we go. Okay, all the rest of the comments are just, uh, people being a little strange, so we'll call this a quick live. I hope this deal walkthrough is fun for you guys. If you guys have more questions, feel free to post it in the comments after this video goes live. Uh, awesome seeing everyone, and we will be doing more live deal walkthroughs, so stay tuned and have a fantastic weekend, everyone. Christian and Cody out.

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