Small Town Midwest Resort Town 1920 Main Street Building

3 Replies

I have become aware of a 1920 era brick building located on a quaint downtown main street in a small (8k pop.) midwest resort town. It consists of three commercial units on street level approx 600 sq ft each, four two bed one bath units on second level, and a large below ground unit. Rent roll is 1% of asking price as it stands but I predict rents could be raised 20% without too much resistance. There are four furnaces in basement (one newer), two water heaters (both newer), gas is separated for the most part, electric is separated, and water is separated. It's a really neat building as the front half is brick in decent condition, the back is a flaking tile poorly covered in a stucco type plaster I believe. Vacancy rate of 2%. Maintenance going forward is my only concern, as of now, which brings me to my question: for those of you familiar with this kind of investment, what types of things (foundational, plumbing, etc.) should I look out for with a building this old? 

Some of the downtown real estate in the small towns is depressed.  There is little use for it.  However, sometimes they come back as boutique retail spots.  Coffee houses, antique stores, professional office etc.  But not the original intended use like in the 1920s.  The apartments are usually not in demand over the storefronts.  But if it is a tourist town, maybe you can make a go out of it.  I would suspect it will be a seasonal investment.  Minnesota has a deep winter and that town is not so charming in January.

For the building, you are buying 1920's era construction.  So it may need substantial capital or suffer larger than average repair costs.  The repairs can destroy your returns.

Look at roof, electrical, and plumbing, including sewer drain line installed , going forward.

I would estimate higher for vacancy in a small town as there may be limited businesses looking for space in a small town.  It might not have vacancy now, but you need to estimate what the normal level of vacancy would be and get an idea of how much demand there is for commercial units in that area.  

I'm not sure if each unit has their own utilities, but four furnaces is a lot to maintain for one place.  

Make sure you really drill down your numbers.  I would expect to get a good return investing in something like that.

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