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Logan Freeman
  • Specialist
  • Kansas City, MO
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Has anyone ever BRRRR'd a Commercial Property?

Logan Freeman
  • Specialist
  • Kansas City, MO
Posted Dec 3 2018, 08:18

I am traditionally more comfortable with the BRRRR strategy in SFR's and small multifamily buildings and have successful at completing over 400 of those types of transactions for our investors, however; a new model has come to me, almost by happenstance.

In our market, in Kansas City, SFR home prices have only continued to climb in the 80-130k price range making it harder to find subject properties to BRRRR. I am not saying it CANNOT be done, I am saying the level of effort that it takes to find one of these properties has become increasingly more difficult. As an investment property specialist and investor myself, I started to search for a new model that would allow us to provide our investors a healthy return while being able to return their capital. I believe I have found it in a new asset class: commercial buildings.

I have been saying for some time now, that the "riches are in the niches." I believe the higher barrier of entry, the lower your competition will be. 

Now, anyone can go buy a bunch of ugly bricks and make them pretty bricks, so how does this model work? Just like Stephen Covey taught us to start with the end in mind, We are starting with the tenant first. We are using our network in the KC market to find the best local good credit tenants who are looking to expand their business or open another location, then we source the property, then we raise the funds for the deal. 

Has anyone done this before? Sample deal I have under contract below. 

Mixed use bldg - airbnb, retail and event space/art gallery

Purchase price - $775k

Rehab - $800k

Holding Costs - $50k 

ARV based on income, see below -

 - 3 AirBnB units generating 175k a year (40k, 40k, and 95k)

- 4,000 sq ft of retail storefront generating 20 per sq ft = 80k per year (also paying insurance, utilities and maintenance)

- An event space in the basement renting conservatively for $2500 per month = 30k

- Total Gross Rents - $285k at 40% expenses (should run lower) = $171,000 NOI at a 7 Cap = $2.4MM

I would think this building will be worth 200 per sq ft = 8,000 x 200 = $1.6MM and 4,000 x $150 = $600,000 = 2.2MM

Someone please tell me if I am crazy? 

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