Just purchased first out of state property in St Louis

[John Krauklis]

Hi all. I am a real estate investor and contractor in Denver with a few large single family short term rentals near downtown. I just closed on a mixed use, five unit property in St. Louis that I paid cash for. I plan to use the BRRRR strategy to get it stabilized and my money back out. It is a bar/restaurant space below and four studios upstairs. 3600 sf total.

Why St. Louis?  I was there last month  visiting my family and was checking out Zillow like I usually do. I was shocked at the prices that I found near downtown.  St. Louis has an amazing stock beautiful turn-of-the-century solid brick buildings.  I found this property because it is my favorite commercial property type. It has a corner bar/restaurant on the main floor and living space above.   It is all boarded up and in need of lots of fix up. I was amazed that there are so many properties for sale that are boarded up and ready to be renovated. In Denver you would never find that because it would go right to the realtors friend or they ate people that of been hounding the property owner about buying it  

 People in Denver always say that they wish they could’ve bought these places 15 years ago when they were dirt cheap. Well that is my bet on St. Louis that these places are dirt cheap now and in 10 years they will be worth a lot more.  It is amazing to me that you can pay cash for a five unit that just need some basic work done to it, fix it up,  then the return on investment is incredibly high. 

 In Denver, it is difficult to buy single families or multi units and get back what you would be paying on the mortgage back in rent.  Whereas in St. Louis it seems quite easy to get good cash flow going out of properties.  In Denver you may get twice the rent but you pay way more per door in purchase cost, say 4-8 times. 

As for the out of state, that is new territory for me and i think i have a handle on it. At least it will be a challenge. As a contractor, I can pretty much do anything to a property that needs to be done. I will be in St. Louis for a full week to get as much done that I can. Then i will have one of the guys that works with me here there for two weeks and a local  friend of a friend who lives in St. Louis be there to work on it.  That combined with a few subs like drywall, HVAC, flooring, I think it will work out. 

Here are my numbers:

St Louis budget

Repairs:

Roof. 8,000

Upstairs

Kitchens. 2500 x 4 = 10,000

(Cabinets 900)

(Appliances 1100)

(Counters fixtures 500)

Bath 1000 x 4 = 4000

(Toilet, vanity mirror faucet 500)

(Shower pan, valve 500)

Floors. 6000

Drywall, Trim 4000

Doors, locks, 1000

Paint. 4000

Lights. 1000

Misc. 2000

Total upstairs. 32,000

Downstairs

Baths. 4000

Floors. 7000

Drywall paint. 6000

Windows, glass. 2000

Accents, wood, etc. 2000

Lights. 1000

Misc. 2000

Labor. 3000

Total downstairs. 27,000

Unexpected 10,000

$77,000

Purchase: $104,000

Total investment: $181,000

ARV: $220,000

Yearly

Taxes. 4000

Insurance. 4000

Property management 6000

Vacancies 4000

Maintenance 4000

Mortgage. 10000

Total expenses = $32,000

Revenue 12 x 4000 = $48000

Income = $18,000 per year

I feel there may be some more costs to come once I get into things but that’s ok. Right now with a mortgage where I get back 75% of the value, that is getting back everything I have put in. If i have to keep $10-15K in to for additional repairs, I’m ok with that. 

Right now the numbers look great and I am excited to see how a cheap market with cash purchase investment works out. 

What do you think?

John 

[Peter MacKercher]

Great post, @John Krauklis! I like the reclaimed wood on the bar. I'm looking forward to seeing more about the project. 

Some advice about the historic tax rehab -- get some advise from a CPA with experience doing historic tax projects about how to record/file receipts and invoices, if you haven't already. Knowing what your records will need to look like and having a good system in place from the outset to get them that way will make life a lot simpler.