How do you pick up a FREE Walgreens as an investment property? I cover that in this episode.
My name is Kenny Wolfe and I’ve been a real estate syndicator and investor for over eleven years; in this time, I’ve built a successful real estate investment firm, Wolfe Investments. If you’re new to the show, make sure to subscribe so you’re notified when a new episode comes out.
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How do you pick up a free Walgreens as an investment property? I cover that in this video.
Welcome to Real Estate Investing with Kenny Wolfe, the show with weekly topics designed to help you learn how to build your ideal life through real estate investing. My name is Kenny Wolfe and I've been a real estate syndicator and investor for almost 12 years now. And in this time, I've built a successful real estate investment firm, Wolfe Investments. If you're new to the show, make sure to subscribe so you're notified when a new episode comes out.
Before we jump into this case study, we need to lay down the basics and define what a triple net and a double net property means. The phrase triple net property is misused by commercial brokers a lot. What it truly means is that a tenant is responsible for 100% of the operational expenses at the property.
That means the tenant fixes the toilet when it breaks, reimburses you for property taxes and insurance replaces the roof when it needs it, et cetera. And that's all while you, as the property owner, sit back and collect rent. There is no better mailbox money than these type of assets. A double net property is where the tenant takes care of most of the operational expenses for a property. That means that the landlord is responsible for the items that fall outside of the items there that are spelled out in the lease. This is really where you need to know that lease agreement and get a summary from your lawyer or someone on your team, for what you are responsible for regarding each of these properties that you own. I can't tell you how many times we've had to highlight a portion of the lease after a repair request to show the tenant that they are actually responsible for that repair.
And here at Wolfe Investments, we only buy these types of assets with high credit tenants, but we're constantly slapping the hand of one tenant in particular, which I won't say here on this video, of about repairs that they submit to us, but which they are actually responsible for. In our worst-case scenario on the assets we buy here at Wolfe Investments, we are responsible for the parking lot repairs, the roof, the structure, and part of the H V A C. Other than that, the tenants take care of the remainder of the operational expenses at the property and they reimburse us for property taxes and insurance every single year. The other thing to keep in mind for these types of assets, is that it's most risky to buy just one. All the stores that we own are single tenant stores at the moment. That means when a store is vacant, then you are at a hundred percent vacancy.
We are a hundred percent occupied here at Wolfe Investments across our almost 60 stores, but you do have that risk. What I did was create a fund five years ago where we bought seven Dollar stores. It's a mixture of Family Dollar, Dollar Tree and Dollar General. That way our investors' ownership is spread over those seven stores. It was a way to de-risk these type of assets. Today we have four funds and are close to hitting that 60 store mark. Those funds are amazing cash-flow machines and are so stable and steady that we do monthly distributions to our investors. If you want steady, stable income, then these are an amazing investment vehicle. Now let's dive into how you pick up a free Walgreens. The one we're talking about today is one we actually own. It's in Franklin, Kentucky, which has roughly a population of 10,000 people.
It's 40 minutes away from Bowling Green, Kentucky and 49 minutes away from Nashville, Tennessee. We've bought quite a few assets in our portfolio in similar size towns, sometimes all way down to a population of 3000 when it comes to our Dollar stores. These smaller towns have an absolute need for retail like Dollar stores or pharmacies, as they're 40 minutes away from larger towns. And sometimes you need something a lot faster than the 80 minute car trip to those stores. Also, if your kid is sick, then you can't wait for Amazon to deliver that cold medicine to your doorstep. You have to make a quick run to get those cold meds. As we dial in closer on Franklin, Kentucky, we really like the location of this Walgreens in comparison to the other drugstores in town. Our store is on the main thoroughfare in town and very close to the middle school.
There is no better location for our drugstore than close to a middle school. The store is also on a hard corner and has some awesome vehicle per day traffic counts. Those items are very key in picking out a triple net or double net store as you always want to protect the downside. If Walgreens ever chooses to leave at the end of their lease, then we want to know all our options on replacing Walgreens with a different high credit tenant. Now, there isn't a CVS in town as well, so we would approach them first, but you'll also see Dollar stores or Ace Hardware trade up their store size and move into a former pharmacy. Those tenants look at the town demographics and really hone in on traffic counts on the street and where their local competition is located within the town.
Alright, now for the fun part-- the numbers. These will show you how we picked out this Walgreens for free over a 19 month period. For this particular store, we ran the blend and extend play. We don't do this for all of our stores as there is a tad more risk, but when they work, they really juice the returns for our investors, when we mix a few of these blend and extend plays into a fund of ours. The blend and extend play is where you buy a store with two years or so left on the lease, and therein lies the rest of the strategy. Because of that risk, the property is sold at a higher cap rate than usual, which inversely affects your purchase price. The higher the cap rate, the lower the purchase price. We mitigate the risk of the blend and extend play by knowing what replacement tenants we could approach should this particular Walgreens choose not to renew at the end of that two year remaining life left on the lease. We felt great about the location of this piece of real estate, so we chose to jump all over it. The new value of the asset came in at 2.3 million on the new appraisal, our lender gave us a 1.692 million loan, and this new loan paid off the old loan of 1.232 million, which is paid down over that 19 month hold period through our monthly mortgage payments. That means we netted $460,000 of closing in refinance proceeds. Add the $111,500 cash flow we enjoyed over the 19 month hold period and you get $571,500 of cash flow and refied proceeds at the fund netted. It costs us 560 K worth of initial equity and we got back just over 570 K. This is how you get a free Walgreens in your portfolio, but it doesn't just stop there.
We are still enjoying the cash flow and principle paydown on this asset as we still own it. Cash flow is a little over two grand at every single month to that fund, and that fund has no equity in that store. The returns are infinite from here on that asset. That is the power of real estate when it is well executed. Yes, you can get a Walgreens for free if you do the blend and extend strategy we talked about in this video. Cash flow and Principle Paydown will also help you get your equity position to zero as well. Through a new lease or a lease extension, you can create value to an asset in the triple net or double net space. Then go do a refi to capture that newly creative value in voila, you have a free Walgreens.
This has been Real Estate Investing with Kenny Wolfe. Thanks so much for listening.