Motel to Apartments: A $1.6M Buy Worth $3M in 14 Months

Welcome to my hotel. Or is it?

This is actually our multifamily building. We bought it as a failing motel: drug dealers, a failed roof, leaks, bugs, the whole nine yards. The place was terrible when we bought it. Fourteen months later it's a 30-unit apartment building in the middle of Moses Lake, almost the heart of downtown, and it's on track to be a seven-figure project.

This is one of my favorite plays in real estate right now, and it exists because of a simple market shift. Between boutique hotels and Airbnb, the old motel model is dying. That leaves a lot of beat-up buildings sitting on premium real estate in great locations. If you're a multifamily investor, and there's a housing shortage in your market, the answer to "what's the highest and best use of this building?" is often very obvious.

Here's exactly what we did, what it cost, what it's worth, and the one mistake that cost us the most.

Before You Call Me a Slumlord

I'll get ahead of the comments. This is part of our hyper-affordable housing. We charge less than $1,000 in rent, which in Washington State is insane.

That's the whole point of the strategy. We took a building that was completely failed, on a great street in an excellent location, in a city that needs housing, and we made it a place people can actually live in and afford. If you want to do something good for your community with real estate, in my opinion you go looking for highest and best use. Not the fanciest use. The best one for that specific property, in that specific town.

One of the units we walked through had a squatter living in it for what I think was about two years. The whole thing was a disaster. We turned a dumpster fire into a profitable building, and anybody can do the same thing.

The Conversion: Kitchenettes Are the Whole Trick

The physical difference between a motel room and an apartment is smaller than people assume. We redid floors, walls, ceilings and windows, but the piece that actually converts the use is the kitchenette.

These only cost a few thousand dollars. You can buy them from Lowe's or Home Depot and get them installed. What you get in a unit is:

• Burners
• A sink
• A mini fridge
• Storage

We decided we wanted people to have more refrigerator space than that one tiny fridge, so we added a second one. Now a tenant has plenty of room for a real week of groceries instead of a hotel-sized snack shelf.

The one thing I wish we hadn't had to deal with: behind the drywall in these units is brick. To add the outlet for the kitchenette, we had to run conduit. So if you want to ding me on aesthetics, fine: it could look better. It works, it's safe, and it turned a room into a home.

The bathrooms we kept pretty simple. Honestly, they still kind of look like hotel bathrooms. But follow me here: it's a simple layout, and this is basic, hyper-affordable housing in a city that needs it, in a building that had completely failed. Nobody living here is paying luxury rent and getting a compromise. They're paying under a grand for a clean, functional unit downtown.

The Full Scope of Work on 30 Units

Here's what we actually did to the property:

• A brand new roof on the entire building
• Changed the paint from a horrible gray and red to beige, blue and white
• Replaced a bunch of the windows
• Completely gutted and rebuilt 15 of the 30 units
• Replaced a bulk of the plumbing and a ton of the electrical
• Converted the manager suite
• Filled in the pool, which is becoming a community garden: that one's almost done

That's a heavy scope, but notice we only fully gutted half the units. You don't have to touch everything at once to change what a building is and what it's worth.

The Numbers

The purchase price was $1.6 million for the hotel. We got financing for $1.85 million, so the loan covered the acquisition and left us a renovation budget on top of it.

We had a couple of surprises along the way, and the total renovation cost went a little over budget: we landed at about $300,000. That puts our all-in at $1.9 million.

The appraisal on the nearly finished project came in at $2.65 million. That means we're in a very, very, very good position on this deal. And when we finish the entire project and get it fully leased, we should be a little north of $3 million, which means over a million dollars of equity in the project.

This is a seven-figure flip. We'll make about a million dollars total on it.

The part I want you to sit with is the timeline: this took about 14 months to go full cycle. If you're used to flipping houses, this is not a quick flip. It's a project with a lot of ups and downs, a few bonus snags, and one small flood, and we still got through it almost on budget.

The Flood That Cost Us the Most

Speaking of that flood.

There's a two-bedroom in this building that we designed ourselves. It used to be part of the old office, and then part of it got converted into a manager suite: the old owner actually used to live in this unit.

Standing in bedroom number two, there's no flooring, the walls are damaged, and the whole place looks like garbage. That's because a hot water line burst.

We had a brand new kitchen in there. Brand new flooring. We'd reframed everything and painted. We were on the home stretch: I think all we had left was finishing the bathroom. Then the line let go, and now we've had to rip out the whole wall, restart the kitchen, replace every appliance because they're all dead and fried, and redo the ceiling because the steam came up and killed it.

This ends up being one of the most expensive things that's happened to me. And it sits right at that threshold where you don't really want to file the insurance claim. It's usually better to write the check than to get your insurance rates jacked. Thanks a lot, Washington State.

So it's back to the drawing board, and we get to do one of my favorite projects a second time.

I share that for a reason. The numbers on this deal are excellent, and they're still excellent after a burst hot water line destroyed a finished unit. Deals don't have to go perfectly. They have to be structured with enough room that an expensive surprise is a bad week, not a dead project.

Key Takeaways

• Dying motels sit on premium land in good locations. For a multifamily investor, conversion is often the highest and best use: run them as extended stay or pursue a rezone.
• The kitchenette is what turns a motel room into an apartment, and it's only a few thousand dollars per unit: burners, sink, mini fridge, storage. We added a second fridge because groceries matter.
• You don't need to gut everything. We fully renovated 15 of 30 units and still moved the appraisal.
• The numbers: $1.6 million purchase, $1.85 million in financing, roughly $300,000 of renovation, $1.9 million all-in, $2.65 million appraisal before completion, north of $3 million when finished and leased.
• Fourteen months full cycle. This is not a house flip, and it shouldn't be priced or planned like one.
• When damage lands right at your deductible threshold, writing the check usually beats filing the claim.

If you want to see the kitchenettes, the units, the pool-turned-garden and the flooded two-bedroom for yourself, the full walkthrough is in the video above.

If you'd like a mentor who will actually work these projects with you, you can learn about the mentorship at mentorship overview. There's also a free course on how to get started in multifamily investing, and a free community where we share the tools we use to underwrite deals like this one.

0:00 Welcome to my hotel. Or is it? This is
0:02 our multif family building. We actually
0:04 bought this as a failing motel. There
0:06 were drug dealers, a failed roof, leaks,
0:09 bugs, the whole 9 yards. This place was
0:11 terrible when we bought it. So before
0:13 you start calling me a slumlord, this is
0:15 part of our hyper affordable housing. We
0:17 charge less than $1,000 rent, which in
0:19 Washington State is insane. Redid
0:22 floors, walls, ceilings, windows, and
0:25 most importantly, we added kitchenets.
0:28 Now, these only cost a few thousand. You
0:29 can get these from Lowe's or Home Depot,
0:31 but we were able to get these bad boys
0:33 installed. The only thing I wish we
0:36 didn't have to do, there's brick walls.
0:38 So, behind this drywall is brick. We had
0:40 to run conduit to add the outlet to put
0:42 this in. So, yeah, you guys want to ding
0:44 me? This could look better. However, you
0:48 got burners, sink, mini fridge, storage.
0:51 We feel like we want people to have more
0:53 fridge space than just this tiny little
0:54 fridge, so we added an additional one.
0:56 So now you have a ton of space for all
0:58 of your groceries. Bathrooms we kept
1:00 pretty simple. If you look at it, it
1:01 still kind of looks like a hotel
1:02 bathroom. But follow me here. You have a
1:04 simple layout. This is basic. This is
1:06 hyper affordable housing, but this is a
1:08 city that needs the housing on a
1:10 building that was completely failed.
1:12 What you're looking for with real
1:13 estate, in my opinion, if you want to do
1:14 something good for your community,
1:16 you're looking for highest and best use.
1:18 What is the best use for this property
1:20 on a great street, excellent location,
1:23 middle of Moses Lake, almost the heart
1:25 of downtown. Let's get people a place to
1:27 live. That's what we worked on here.
1:30 Now, this unit actually used to have a
1:32 squatter in it for a significant amount
1:34 of time. Someone was living here for I
1:36 think 2 years. This whole thing was a
1:38 disaster. We turned a dumpster fire into
1:40 a profitable building. Anyone can do the
1:42 same thing. I'll share the numbers with
1:44 you a little bit later outside. So,
1:47 let's talk actual numbers. So, the
1:48 purchase price was a million6 for this
1:50 hotel. We did a brand new roof on the
1:53 entire thing. We changed the paint color
1:55 from like a horrible gray and red to
1:58 beige, blue, and
2:01 white. We replaced a bunch of the
2:03 windows. We renovated 15 of the 30
2:06 units. Completely gutted them, redid
2:09 them. We replaced a bulk of the
2:11 plumbing, a ton of the electric. We
2:13 converted the manager suite. We filled
2:14 the pool behind me. We're going to turn
2:16 that into community garden. It's almost
2:18 done. We bought for a million6. We got
2:21 financing for a million850. So, we start
2:23 with a4 million budget. Total rena. We
2:26 had a couple of surprises along the way.
2:28 Total reno cost went a little over
2:29 budget. We went to about $300,000. So,
2:31 our all-in is $1.9 million. Appraisal
2:36 came through and we're almost done with
2:37 the project. So, our appraisal on the
2:39 almost finished project came in at $2.65
2:41 65 million, which means we're in a very,
2:45 very, very good position on this. Now,
2:47 when we finish out the entire project
2:48 and get it all leased, we should be a
2:49 little north of $3 million, which means
2:52 we'll have over a million of equity in
2:54 the project. This is a seven figure
2:56 flip. This project took about 14 months
2:59 to go full cycle. So, if you're flipping
3:02 houses, this is not a quick flip. This
3:03 was a project that had a lot of ups and
3:05 downs, a few bonus snags, one small
3:07 flood, but we got through it almost in
3:10 budget. We will make about a million
3:12 dollars total on the
3:14 project. All right, guys. This unit is a
3:16 huge bummer. This is a two bed unit. We
3:18 designed this. This used to be part of
3:20 the old office. Uh then they converted
3:22 part of it to a manager suite. The old
3:23 owner actually used to live in this
3:25 unit, crazy enough. Uh but I'm in
3:27 bedroom number two. If you're wondering
3:29 why there's no flooring, there's damaged
3:31 walls and the whole place just kind of
3:32 looks like garbage. Uh we had a hot
3:36 water line burst. So, not only did we
3:37 have a brand new kitchen, brand new
3:38 flooring, we reframed everything,
3:41 painted, we're on the home stretch. I
3:43 think we needed to finish the bathroom.
3:44 That was it. Uh, we now have had to rip
3:46 out the whole wall, restart the kitchen.
3:49 The appliances are all dead and fried.
3:52 The ceiling needs to be redone because
3:54 all that steam came up and killed it.
3:56 Uh, this ends up being one of the most
3:58 expensive things to happen to me. It's
3:59 right at that threshold where you don't
4:01 really want to do the insurance claim.
4:03 It's usually better to write the check
4:04 than to get your insurance all jacked.
4:06 Thanks a lot, Washington State. But
4:09 right now, this is what we have. So,
4:12 back to the drawing board. We're going
4:13 to do one of my favorite projects a
4:14 second time.