Deal #15 – Motel Conversion to Commercial BrrrrBNB | PCB #1

Overview:

This my second BrrrrBNB deal, which is a combination of the BRRRR strategy with renting the units as short-term rentals (STRs). By combing the two strategies we are getting the best of both worlds: the velocity of money that the BRRRR strategy provides and the amazing cash flow that STRs provide. After the rehab we will be able to pull out our initial capital and have no money left in the deal, all while cash flowing over $100k/year. That’s why I love BrrrrBNB!

This property sits on 3/4 on an acre and comes with an additional lot that we can split off and build on or just use as paid parking since it is right by the beach with public beach access and in an area that has a big shortage of public parking for the beach. At the time we purchased it was 16 units and we are converting it to 18 units by splitting up the large manager’s quarters (not counted in the unit count) into two units and renting both.

I am writing this a week after closing and we have just begun the rehab, so more coming!

The Numbers

  • Purchase Price: $1,100,000
  • Financing: We had to get a commercial hard money loan because once we got under contract the seller would not provide any financials so the local lender that we planned to use backed out. So with one week left until we closed, we pivoted to a hard money lender who could originate the loan in that amount of time. And boy, did we pay for it! We paid about 10% in various points and fees, as well as need to bring an additional 10% down because we couldn’t get the appraisal or lender inspection before closing (that will come back to us once we get the appraisal and inspection in the weeks after closing) and we had to fund the full rehab amount upfront and pay it in draws from the bank. All-in we brought $608,000 down to close. Ouch. But we closed and in the long run that will be all that matters.
  • Rehab: $243,000.
  • Projected After Repair Value: $3M+

Lessons Learned:

  • ┬áSometimes you have to swallow your pride and take it on the chin to get the deal. The seller was very difficult to deal with – he changed his mood like the weather, in Florida, during hurricane season and he also hung up on me several times. He frustrated me many times but I knew the deal would be worth it if I could overcome his antics and pull it off. Many times I referred to this deal as pulling a rabbit out of a hat because that’s what it felt like it would take to make the deal happen. But the money was wired the tide turned and we successfully closed.
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