Hello! Who are you, and where are you from? What’s your venture?
I’m Wesley and we financed a hotel with no money down, only paying out-of-pocket for repairs.
It started when I bought a 43-bed hotel with my family. A few months later, we’d converted it to small apartment complex. We fixed up a sizable kitchen and dining area for residents to share communally. We even had a meeting room and an apartment lobby.
Here in the Midwest, housing is in short supply, and we were eager to meet the demand. The community Housing Authority inspected the rooms and helped prepare us to receive Section 8 housing vouchers. When our work was complete, we had 42 apartments averaging 320 square feet and a nice courtyard in the middle.
Our bank gave us an 80% loan and also added a wraparound product to cover the remaining 20%. We also obtained $50,000 from this bank for repairs, spending a total of around $170,000. Each room has a mid-sized fridge and its own bathroom.
The community kitchen is only open in the daytime, and we actually have a volunteer come three times weekly to cook hot dinners for tenants. You can typically find a tenant cooking lunch there, as well. Monthly, we serve about 200 meals. Additionally, we have two vans that can transport tenants to the store and the medical hub.
My vision is to add even more updates soon since we have a good cash flow. Right now, it’s $850 per room. We charge yearly and move-in rent, which is feasible for our tenants. We’re trying to focus on veterans now, specifically vets that just became homeless. However, we’re really open to anyone. We’re proud that this property is not only profitable but is helping a community in need.
Our monthly expenditure is $15,000. That covers insurance, property taxes, gas, TV, internet, and two full-time salaried employees. Our capacity is almost always filled to the max, averaging 41 monthly rental payments.
But we really couldn’t have done this without the help of our tenants. They were interested in helping out and we had no shortage of people that needed the support. We had tenants from every walk of life, from disabled vets to rehab patients to senior citizens. This place was more than just an apartment building. It was a real community.
Our building acts as a benefit corporation. However, the other two owners and I initially established it as an LLC. None of us have spent a penny out-of-pocket. Our tentative plan is to get this running like an oiled machine, then sell it. As of now, we owe $475,000, and our total spend will probably be $750,000.
I hope this inspires someone to get creative with your housing ideas – especially if you can work with your Housing Authority on accepting vouchers, as we did. I would love to see more of these projects happening.
What’s your backstory? How did you find your deal?
It took a year to find this opportunity, but the time spent searching was well worth it.
A family member of mine was passing by and stopped by this random hotel one day and talked to the owner, who said they were considering selling. They discussed the sale of property for four months. The owner actually listed it on the public market before, but no buyers came. Three acres also came along with the property.
Now, one thing I want to point out is that this $475,000 loan was tough to swallow for me. Debt can be devastating when misused. But, I was confident I could do it with my 10-year real estate background. (If you don’t have any money or any experience in real estate, then please, don’t attempt this.)
The housing voucher process can be cumbersome. In a rural area like mine, only 3% of housing vouchers are used, so I wanted to take advantage of the program. Most investors in this program understand the risk-to-reward ratio, and they know it’s generally not worth it. Many believe that you should only attempt this if you’re a pretty ruthless real estate professional with a savvy team behind you. Many investors wouldn’t bother with a like this project and definitely wouldn’t spend time on the creating a community as well.
We didn’t need to make any changes to the zoning or to the infrastructure that was already in place. Not being forced to get zoning permissions saves some many headaches, so we were grateful for that. And that definitely would’ve added to the overall cost.
So far, I’m doing great on the budget. The monthly expenses have been predictable. Every week, about a dozen people want to move in. But managing everything is tough. It’s a roller coaster sometimes. In fact, it’s easy to see how this type of housing community could really fall apart. But for the most part, our most significant issues have been only minor theft, petty arguments, and a few troublesome tenant family members.
How did you finance it? Did you get a loan from the bank? Interest and terms?
Financing the building was fairly easy for us, given our excellent and lengthy history of business with our local bank, giving us a loan covering 80% of the cost. The Economic Development Council had a loan program for Covid products, which is how we covered the remaining 20% of the cost. This is also how we managed to get the additional $50,000 for repairs as well as closing costs. This was a huge win for us.
We use the property as collateral, and have only gave sweat equity and out-of-pocket costs totaling about $150,000. This was a full documentation loan, so we logged the appraisal and presented our full business plan, estimated income, projected expenses, etc. The first loan is 4.75% with a 10-year balloon, while the other is 5% with a 15-year fixed term. Our excellent credit was the key to getting these amazing rates. My personal credit is also really good as well, and I did have cash on hand for the repairs just in case. Even if the rates were as high as 8%, we still would be cash flow positive.
Our initial rental rates – $800/month at the time – had to be approved by the Housing Authority. So, we acquired and showed the bank a letter from our Housing Authority, which stated that 400 rooms were in immediate demand at a monthly rate of $800. NIMBY’s always look to shoot down projects like this, but luckily, there was no stopping us legally since we’re unincorporated. Our screening process uses the county background check system.
Fortunately, we were able to have our units inspected in advance. It’s not specifically supposed to happen that way, but because housing was in such a shortage, they allowed it.
Was there any repairs? How long did it take?
There were definitely many upfront repairs. We’ve already done $150,000 in repairs, which took a few months, and in the coming six months, we’ll have about another $150,000 to go. So, the total will end up around $800,000.
Our septic system needs some upgrades. It fell under code when it was built. Now is a different story. The septic area is about 0.5 acres in a fenced area, and we have to get it pumped as needed.
Other upgrades included new microwaves and hot plates for cooking, as well as some new furniture. The beds, bedding, and flooring had just been renovated by the hotel before we purchased it, thankfully. The courtyard was another story. It had to be completely redone, we spent quite a chunk of money on it. We also added two laundry rooms and new temperature control units to all the rooms.
How did you find your buyer/tenant? Do you have a team?
We don’t have an official management team, so we have to use all of our resources and connections wisely. This includes our volunteers, the Housing Authority, and the two other owners.
For our lease contracts, we used one we found online. The attorney just had to tweak it and approved by the Housing Authority, which it was. The Housing Authority also had an additional contract, separate from the lease agreement, for the tenants to sign.
We’re fortunate to have a reasonable Housing Authority to help us succeed with this real estate project. They weren’t trying to stop us or slow us down. It really was easy to work with them, and we continue to hold an amicable relationship. In fact, I intend to stop by a few times throughout the year to drop off little treats and goodies for them. As a real estate agent, I know no one really appreciates the work they do. No one sends them gifts, and no one tells them “thank you.” When they accomplish project goals, they don’t get bonuses. Conversely, they won’t ever get fired for doing a poor job either. So, consider that if you’re working with your local Housing Authority. But you can really change them, make them feel appreciated.
One issue we’re continuing to deal with is tenant quality. Our rule list is rather short, but we keep it very straightforward. We absolutely care about them, but of course, we don’t want them to ruin the units. Monthly room checks are mandatory and we raise our expectations with them – even more than they’re accustomed to.
Since there’s no homeless shelter in our county; our apartment building has become something of a drop-off destination. We get about 10-15 homeless that end up here per week, asking for assistance. It’s very sad and very hard to see and turn people away. We wish we could do more.
A lot of our tenants have free time and enjoy doing little things to perk up the community. For example, some of them put up holiday decorations or clean up some of the common areas just to be nice. We don’t even assign tasks; some people just like to help out. The kitchen is the most highly tended-to area in terms of supervision. Obviously, we want to guarantee that the food cooked there meets safety standards. We can’t have any kitchen fires, either. That would be no good! The community really has a welcoming environment to it.
We had to work hard to show our volunteers that they are appreciated and earn their trust as a community. And we do value them very much. I was shocked at the number of community volunteer groups that exist in our area. When we presented this opportunity and asked for volunteers, they seemed to come crawling out of the floorboards. Two of the nearby churches cook dinners every weekend. We have a couple that will work with our tenants on their finances. We also do community events, such as organizing carpools into town, hosting BBQs, etc. We also host an AA group there. We now have a dedicated room where medical workers and social workers can hold private meetings with tenants. We really have a strong network here, providing services for seemingly everyone. As managing owners, we provide oversight and security, we collect the rent payments, and we help diffuse any tenant issues. However, these community benefits are unpaid, and it makes me very grateful for the support we receive.
With no advertising, we receive about 15 tenant applications per week. So, I haven’t spent anything at all on marketing any of these units. It’s just word of mouth. But we do have a Facebook page, although it’s more of a community page to keep our current tenants informed about our activities, events, etc. The Housing Authority gives us a ring almost daily, and so does our non-profit medical establishment.
They simply don’t have a downpayment available. We had to establish a low entry barrier so we could accept people without the downpayment. It’s a bit scary, of course. We automatically reject tenants that have past sexual assault charges, felonies or have ongoing drug cases. It just wouldn’t be appropriate that in our community setting. They must have some income, even just the monthly disability check of $740. Unfortunately, we’ve had some tenants breaking community rules or using drugs, but it’s not the norm. So far, we’ve actually only had one eviction. Potential tenants must apply in person and attend an in-person interview. Our waiting list consists of 28 people.
Section 8 should continue paying tenants for 15 years, according to my knowledge. There is an overlay for disability. Additionally, if the tenant starts making more income, they’ll drop off Section 8 housing.
Out of our 42 tenants, 32 use Section 8 housing vouchers. Those with very low incomes pay $50. Low-income earners pay $200. Everyone else pays in full. Since our rent includes all utilities, it’s still a cheap option, especially when you factor in all the other community benefits.
While we don’t have on-site mental health service professionals, we do have them readily accessible by phone. However, our goal is to have some on-site eventually. I highly recommend working with the VA; they’ve been amazing to work with.
What is the revenue? What are the expenses?
Our rent has increased from $800 to $850, but it would have been $650 if we weren’t charging for utilities. It might still seem like a high price to some, but that’s what the government wanted, so this is how we’ve chosen to run the facility.
This is as affordable as it gets. Even trailer parks charge anywhere from $1,000 – $1,200. Now, this is for one single-wide trailer, which costs an extra $500 to $800 per month for electrical costs. They’re in rough shape too. This past winter, three trailer homes burned to the ground because they weren’t taken care of properly. They were built 50+ years ago. They’re only 900 square feet. Need I say it again? It’s a terrible market. Single-family homes start out at $1,600 per month. You can some 2-bed apartments for around $1,100 per month, but they’re likely to have very long wait lists. And they don’t even take housing vouchers.
Now, the Housing Authority, as well as other nonprofits, are spending $85/night on hotel rooms. Compare that to about $28/night, equaling our monthly $850 rate. You see, they were very excited to opt into our rental price, especially when we offer yearly leases.
Some people are on disability and also receive housing vouchers. So, they’re paying $50/month out-of-pocket. All of their housing bills are covered. The fact that we worked utilities into the rent payments really helps those people out. This way, they don’t have to worry about picking whether to pay their electric bill or pay for medical care or food. The electric bill is covered. And, by the way, so are a few nights’ worths of dinners. This functional charity is one of the best things about how we operate today, and our intention is to keep this running in the future.
The decisions of our tenants can certainly affect our operating costs, but as of today, this effect has been low. Some tenants (or their friends or family who come to visit) do have issues with drug use that impact the unit. If there were some way to provide more support for these tenants to prevent such issues, we would certainly explore those options.
How are you doing today and what does the future look like?
Over a typical week in our building, about 20 people come by, looking for a place to stay. Three people used our parking lot as a safe place to sleep in their cars. 12 new people who are currently experiencing homelessness and living in nearby tents or sheds contacting us looking for tenancy. 13 veterans are currently living here.
We stay active in the community and advocate discussions around the topic of homelessness. One of our tenants just decorated the courtyard a bit for the fall season. We recently called for donations of men’s clothing and were very grateful to receive a loud response. We received donations of personal care items, little care packs, cards, and bracelets from a Warren County School program. A local chiropractor just held a fundraiser for us, which we were also grateful for. The community simply continues to partner with us, support us, and keep us busy.
As far as new updates go, we’ve made additions to the courtyard area. We’re working on some outdoor undertakings, including planting new grass and installing sunshades. We also poured some concrete to make a spot for outdoor furniture. We added doggie stations, new signs, and are working on finishing a new deck. We’re simply constantly improving the space and trying to give our best to this community. We’re always accepting donations of gently used clothing and other items.
My concern is making sure our tenants can come here, stabilize themselves, and eventually move on to a better housing opportunity. It’s a big vision for us, which we’re still working on. Some tenants have already moved out, but they went to live with family or to the big city. More affordable housing in our location is necessary to help these people. Surprisingly, about half of our tenants are full-time employees working 40-50 hour weeks. But, their wages are so low that they still qualify for Section 8.
A long-term goal I have is to use USDA direct financing. If I can get tenants approved through that, we could construct homes for them to purchase. This information is not well known, but Section 8 housing can also be used to help people buy homes. The mortgage payment is simply funded in the same amount as the rent payment would be. However, it’s a mess when it comes to paperwork. This is the housing choice voucher ownership program.
Now, my question is how I can do the next project like this. Should I sell this? My fear is that the new owners will run it to the ground. Also, I’m not sure if the Covid loan program still has funds to offer. Only time will tell what the next best move will be.
Any advice for other who want to get started?
Did you know just a single year of homelessness can remove up to 20 years of your expected lifespan? It’s true. In fact, a couple of our tenants in their 60s actually passed away while living here. It is regrettable. They’ve had a hard life, and sometimes we see the end of it. In these cases, we help manage them ourselves.
There’s one main reason why most people don’t attempt this. It’s because a year lease is required to participate in the housing program. Most of the tenants we have wouldn’t qualify for a typical lease (first, last, and downpayment). Half our tenants literally came off the streets, and the woods nearby have people living in tents and storage units. These aren’t golden tenants by any means, especially when the market goes off and a million people are looking to rent.
Also, sometimes investors with large portfolios approach me. They ask about my management team, where I got this idea, what really made me give it a go and etc… Obviously, I like making money. In this case, I just identified a need. There really was a disconnect between providing services that people require and profiting in that space. I feel I closed the gap with this project. First-tier housing is essentially absent from the market. It baffles me. We all need shelter, just like we all need food, water, and clean air. If you can believe it, my state not only made being homeless illegal but also will slap a fine and a court record on the homeless for being on public grounds. Meanwhile, they’re not providing adequate, affordable housing. It doesn’t add up. We can’t expect people just to go claim new land and establish an encampment… there is no such land to claim. The rules here are nonsense. I wish these bigger investors could see this need and help fill it.
Where can we go to learn more?
I don’t have any have social medial accounts for others to get in contact me with per se, but we do have a community Facebook page, which has information about our upcoming events, news, and, just any general highlight of our community members to show how greatly we appreciate them.