Turning Mismanaged Hotels into Multifamily Properties?!

There are markets all over the country where we see these. There's actually almost no markets I've driven where you don't have rundown hotels or mismanaged hotels. Hotel conversions, taking a tired hotel or motel and turning it into a multifamily building. Is this the multifamily investment of the future or is it a total bust? Well, Cody and I have done a few of these and we're gonna share exactly what we found in this video. Welcome back to the channel. My name's Christian. This is Multifamily Strategy. Today we're talking about motel hotel conversions. Cody and I have done two of these and we've purchased multiple buildings that were originally motels that were converted back in the '60s, '70s, or '80s, depending on the building. We've done several. What we're finding is that there is a huge market on nice motels that are mismanaged and you can get them at crazy low prices and you can actually get them rezoned and appraised as multifamily. So what do you actually have to do to get there? Because I'm going to share some of the numbers with you. But first, what is the actual journey? So you want to look for a nice building. It wants to look really good on the outside. The inside can have as much reno as you really feel like doing. But the first thing is, what is the location of the building? Like any piece of multifamily, and does it look like a nice building that should be multifamily? There are some motels that should just stay motels or get demoed. Not every building is somewhere someone wants to live. So number 1, aesthetic feel. Does this feel like a building that someone would want to live in as a multifamily building? One of the first ones we did is a 24-unit building that has a beautiful little office up front, 2-story walk-up, brick building. It's gorgeous, super cute. They're big studio units, couple of 1-beds, and about half the units had kitchenettes. That is what we're looking for, for a great start to our conversion. Speaking of kitchenettes, most rentals are going to require that you have an actual kitchen or kitchenette. This means you have a fridge. This means you have a sink. And this means that you have a cooktop. You can actually buy these in prebuilt sets, and I highly recommend that. You can get them for about $2,500 from either hotel supply stores. You can find them on Wayfair. There's some on amazon.com. You can find these all over the place., but it's basic plumbing. They're basically plug and play. You plug them in, you attach them to a water line, they're good to go. Get that qualification done. This is a fantastic strategy if you're providing low-income housing, especially in a market like Moses Lake where we invest that has a huge need for more housing. You buy nice units that look really great, but you can do this really simple for not a lot of money. The other thing you want to check, and this is going to be city specific, Some places are going to require that you do some very expensive sprinkler systems. Now, in our market, you get grandfathered in if it is a motel and it's functioning and you take it and you get the conversion done. You don't have to add the sprinkler systems that you would if you had to rebuild or build new. So make sure you know the cost of that. That is the one thing that I've seen as a huge deal killer is those fire suppression systems that are sometimes required in some areas. Can make it completely non-feasible to do your projects because it will absolutely cost too much. However, let's share some real numbers on deals. So 24 units and we're in a market that usually trades at about $100,000 per unit in valuation. We bought a 24-unit hotel for $1 million, seller financed, $300,000 down. Fantastic price. When we were finished with this and because it's a hotel conversion, I expect it will, it would be valued a little bit under market rent or rate. So let's say that it appraises at around $2 million. Our actual cost to renovate the building is going to be about $60,000. The units are nice. The paint is nice. The showers and bathrooms are fantastic. We have to replace a few toilets. We had to take out a few beds and we had to add kitchenettes in a little bit over half of the units. Not a super expensive project. And the fun thing with the kitchenettes is you can actually finance them. So if you bought it zero down and you have $0, uh, you can actually cash flow those. You do a few units, rent them up, take the cash flow, buy a few more. You can actually do these projects in phases, which is really fun. But when you're doing these hotels, you really just want to look at, okay, what is the actual cost of renovating this? How do we make this a nice livable space where people want to live? And are we going to get any pushback from the city? This is something Cody and I learned really early on. Do this during your feasibility. Don't do this after you close. Talk to the city, work with them. Don't just take their word that they like it. Actually meet with city planning and the zoning and make sure that your project is going to be approved by them for your desired use. If you can get this thing rezoned and you get it leased up, This is a fantastic deal. We're going to be able to double the value of the building in about a 6-month cycle. Funny enough, we may actually receive an offer on it before we even finish the project for $1.6 million, which means we can come in and buy this and make $600,000 without actually doing the darn project because we got the zoning part done. We're doing this with a larger hotel, 33 units. It's going to need more reno. We got the budget to do that upfront. It's going to be probably the best deal we've ever done. 33 units, $1.6 million. When we're done, it's gonna be worth a little north of $3 million. There are markets all over the country where we see these. There's actually almost no markets I've driven where you don't have rundown hotels or mismanaged hotels. I just drove through a city in Texas, met an owner there, and they're trying to get out of their hotel. When I talked to them about their operations, they said, well, the problem is we have no operations manual. No one wants to take this over. Uh, we fired the on-site manager, and right now it's just run by local college students. They literally have part-time college students with no operations manual guessing how to run the hotel, and they're running it out of emails of how to work the point-of-sale system. That is a real example in a real city that I just ran into driving through Texas. These deals are all over the place, and the question is What is the highest and best use? Now, we also have friends who love the boutique hotel model. So the other way you can go with these is you take these tired motels, you absolutely deck them out, you create a unique experience. However, Cody and I have done hospitality. We have the Robin Hood Village Resort. We have found we're multifamily people. It's what we're good at. We love entry-level housing, and I find that more rewarding. There is something that just gets me excited about, hey, we need housing. There is a huge need and we can help get families and people off the streets by being really good at what we do. So for me, I get very excited about these projects, especially in areas that have a high need for low-income housing. I love the multifamily conversion, but the right project is going to depend on your market and really what you're passionate about. If you want to deck these out and create the most unique space, I have a bunch of friends who do that. We did that with our resort where we're just continuing to deck that out. We're improving the management. It depends on the project and the business that you want to build. But ultimately, there is a ton of opportunity in these. You can find them anywhere in the country. How do you find these? I found the best way is to drive them. I know we always say Google Maps on this channel. Find the market that you want to invest in and that you're having success in and actually drive it. Look at those buildings, be around them. Heck, maybe even stay in a couple of the nearby hotels. Get a feel for what they're like. And make a decision on what you want to purchase and improve. The last thing I'm going to add here, this is not what I recommend as a strategy to get into real estate initially. If you're buying a motel and you're converting it to multifamily, you're going to have to empty the motel, which means you're going to kill the cash flow. When is it the right time to do this? What we found is we built a portfolio that kicks out about $40,000 to $50,000 per month in positive cash flow. We use this cash flow to fund our renovations and the negative on the hotel. In addition, we structured our deal where we have no payments for the first 3 months, which makes it a lot easier if you don't have a mortgage to compete with. But as we're structuring these, make sure that you have underlying stable real estate. You're not just going to do this as a first project because if it takes longer or you have something get held up in permitting, this is something that can absolutely tank you if you don't have the means to make it through your project. So If you're looking to get started, highly recommend something very stable, like simple multifamily investments. Boring, straight to the point. If you don't have any money, master creative finance. But if you can create an income stream that allows you to sustain the debt and the utilities cost while you get your project completed, these are the deals that I think are going to be making more millionaires than any other asset class because of how simple the conversion is and how high the upside is.