December Investor Letter
Hello EAC Community,
Over the past two months we have been buying homes in St. Louis, Birmingham, and Jacksonville, NC hold as rental properties. Our intent is to rehab these properties, rent them out, and refinance them with one of several portfolio lenders with whom we are currently negotiating. Because we are purchasing these homes with significant deferred maintenance, we are able to purchase them at 70% or less of the after repair value (ARV.) And since portfolio lenders will lend at 75% of ARV, we will be able to pay back our investors fully once the loan is in place.
Below is an example of a "Class-B" single family home in Jacksonville, NC. We know this market better than any other, as we have flipped many homes in the immediate area over the past year. In order to sell these homes they have had to appraise for what we expect, and they have done so in every case. Here is our latest home to go under contract, slated to close escrow at $99,900 within the next two weeks.
109-Mill-Pond-Rd-Jacksonville-NC-28546
As you can see, this home is nicely rehabbed, but by no means does it include any higher-end touches. Even so, the appraisal still came in slightly above the selling price.
Proposed Investment - 322 Cougar Lane, Jacksonville, NC 28546
This home is a similar home, being 3 bed, 2 bath, and slightly smaller at 1,269 square feet, and is less than a half mile away. We are under contract to purchase this home for $30,000 and will put approximately $16,500 into the rehab. Added to this will be about $800 in closing costs, bringing the all-in price at $47,300. We expect this home to appraise for at least $85,000, meaning we are purchasing/rehabbing at approximately 55% of value. See pictures of the home, as listed:
322-Cougar-Ln-Jacksonville-NC-28546
Nearby comps from my research, besides our own 109 Mill Pond: (I have asked our real estate agent, John Troup, to pull a more complete list which I will send separately.)
4906-Gum-Branch-Rd-Jacksonville-NC-28540 - Sold 10/14/14 for $93,000, 3 beds, only 1 bath, 1,120 square feet
4966-Gum-Branch-Rd-Jacksonville-NC-28540 - Sold 4/25/14 for $100,800, 3 beds, 2 bath, 1,176 square feet
111-Meadow-Trl-Jacksonville-NC-28546- Sold 1/13/14 for $115,000, 3 beds, 2 bath, 1,005 square feet, fully rehabbed and large lot.
This home will be rehabbed with durable, rental-appropriate finishes. In fact, the home was completely remodeled in 1990, so most of the systems (electrical and plumbing) are in excellent condition. I do not yet have a full scope of work to be done, but will have one by the end of the week and can provide.
This home should rent for a minimum of $850 / month, and the attached pro forma shows that it should result in a 12% return on the total investment. We are raising $47,000 on this home, and can pay 12% annual interest, with monthly payments of $470.00 paid on the 15th of each month. As with all our buy/hold investments, we will execute a promissory note and record a first position Deed of Trust on the property in your name. The term of the note will be 3 years, but it is expected that we will refinance the home and pay you back within a year, perhaps much less.
EAC GP, Inc.
9834 Genesee Avenue Suite 310 | La Jolla, CA 92037
Cell 760-519-4152 | Tel 858-255-1012 | Fax
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