How a Commercial BRRR Generates $550,000

In February 2017, we closed on a value add commercial property with a purchase price of $950,000. In February 2019, we closed a refinance to pull all of our initial capital plus some extra cash into our pocket based on a new appraised value of $1,510,000. Here’s the play by play for how the $550,000 BRRR happened.

From the very beginning (even before we purchased), I envisioned the BRRR strategy for the project. We were buying a commercial property at a discount because it was 50% occupied. In the commercial world, square footage and layout are very important to ensure you keep high occupancy rates. If your space or spaces are too big then tenants won’t pay for space they don’t “need” and if the spaces are too small they won’t rent them. You have to strike the right balance of square footage and layout based on your target tenant demographics. For our project, we were able to invest $10,000 to reconfigure spaces and market to a slightly different tenant demographic than the previous owner. Utilizing this strategy, we achieved 100% occupancy within a year and basically doubled our Net Operating Income (NOI). NOI is used to value commercial property based on how much income the asset generates and the market cap rate. One reason I love commercial property is that you as the owner can control your NOI which ultimately gives you the power to control the valuation of the asset.

My hope was to refinance after 12 months with 100% occupancy however, after calling 20 plus lenders and getting hearing “No, it’s too close to your purchase about a year ago”, we had to wait. That’s a bunch of lender BS but I’m not going to get into the love hate relationship with lenders here. Anyways, the next 12 months we cash flowed the property to get a decent return and completed the BRRR in the 24th month of ownership.