Gateway Spaces Case Study: BRRR with STRs as Exit Strategy

Property Details: The second property that we decided to lease as a short-term rental also happened to be our first deal that we used the BRRR method on(BRRR= buy, rehab, refinance, repeat). Our first STR in Bevo was doing better than we had anticipated, so we wanted to find another property where we could apply our STR management systems and get similar returns. Trouble was, it was 2018 and the housing market in St. Louis was heating up. We couldn’t find any more newly rehabbed houses for $80k. So, we started to consider rehabs.

My brother-in-law, Brandon, ended up finding an awesome HUD home. It was 3 bed, 2.5 baths and was in an area of South St. Louis City called “The Patch”. HUD was asking $100k for it, but we went in with a low-ball offer of $65k. After two weeks, HUD countered with $68k, and we accepted. The rehab took about 1 month and costed about $42k (including the furniture and STR accessories. We used a local hard-money lender to finance the deal, which ended up costing $11k total. The house was built in 1840, but had been recently renovated, so the rehab was not too extensive. It mainly consisted of cosmetic upgrades – painting the cabinets, installing new kitchen and bathroom fixtures, replacing the flooring, and painting every wall. After rehab was complete, the house was reappraised at $160k, which gave us an equity capture of $39k.

As a short-term rental, the property grosses $2,864 on average, with cleanings, supplies, and utilities costing $984 per month. This left us with a net profit of $1,880 per month, which is well above the local LTR rental rate of $1,400 per month.

Lessons Learned: By far the most important thing we took away from this project was confidence in our ability to find, fund, and finish rehabs. This was a great first rehab to tackle, because there weren’t any major issues. We met some great contractors and vendors that we still use today (we’ve used the same granite vendor for all our kitchen rehabs). We also learned that “The Patch” is a great area for real estate investors. There is a lot of charm and history in this part of town and great deals still exist (especially if you’re willing to put some sweat equity in).

We also learned that you need to factor in the utilities when you’re estimating monthly costs for a STR since this is the owner’s responsibility and not the tenants. This property had two HVAC systems powered by an electric furnace, which turned out to be much more expensive to fuel than a gas furnace. This was unexpected expense that ate into our monthly profits.

For more information and photos of Gateway Spaces short-term rentals, please visit https://www.gatewayspaces.com/.