Have I Found the Holy Grail of Passive Real Estate Investing? (Part 3)
Performance Update 3 (April 2017)
Another set of quarterly reports have been made available, and payments made for the various performing portfolios I invested in. These were for the first quarter of this year. The returns I report below are annualized from the date of 100% occupancy and rounded to the nearest 1/10 of one percent. Portfolio 5 was my first investment of this year, and started earning February 1st. The homes in this portfolio were only about 50% occupied at that point, and are not yet close to full, so it is too early to report. The other three portfolios are all providing earnings at or above the range projected on rental income (9-11%). While Portfolio 3 is way above the projections so far, I anticipate that likely to come down with more time.
Portfolio 1 (15 months): 10.6%
Portfolio 2 (11 months): 11.4%
Portfolio 3 (3 months): 14.4%
Portfolio 5 - too little data
The first debt portfolio I invested in only became fully occupied as of March 1, 2017, but the annualized return is for the entire quarter. Just to remind readers, these debt portfolios have a guaranteed interest payment of 8%, anything above that is from a share of rental income. The projection is 9-10% from interest and rental share, which I anticipate this portfolio will reach or even exceed, now that it is fully occupied.
Portfolio 4 (1 month): 8.8%
Portfolio 6 (no earnings yet, see below)
In March I made my 6th investment, and this was a Debt Portfolio in a 46 unit apartment complex. This was the first such offering that this company made, but they plan to do much more in the multiplex space with medium to large buildings. This portfolio started earnings on April 1, and the buildings are undergoing rehab now. It is not expected to be fully stabilized for 12 months, and in addition to the debt (mortgage) carried by the investors, the company also took a seller-carried loan, which has to be paid off in three years. After achieving full occupancy and with forced appreciation, the company plans to re-finance all, or nearly all, debt via a bank loan in about 18 months. At that point I and the other investors will get most or all of our capital back and still be paid a share of the net rental income. Of all my investments with the company I consider this one the most risky. It has the most moving parts to bring together and execute well in a fairly tight timeframe. I suppose it is a testament to my continued and growing confidence in the company and its people that I took the plunge.
That confidence was significantly enhanced by my second visit with the company earlier this month. On my first visit, over a year earlier, I met only the co-founders of the company who gave me a tour of their properties and their large office space. As it was a weekend, no other staff was available then. This time I had the great pleasure of meeting much of their growing team. I even sat in on a staff meeting, which was run with both professionalism and a sense of fun, as each of the various departments reported – acquisitions (SFR and multiplex), construction, property management, client relations, etc.
One staff member, the Director of Client Relations, I had spoken with frequently but hadn’t previously met. She took me to some properties I wanted to see, including the apt complex portfolio I’d just invested in. I got to see some of the progress on the rehab work and meet some of the construction staff. Five days later I took a drive to their second city of operations, and met a couple of their team members in that city. As this was my first time to this city, their local acquisitions guy toured me around this much smaller city and the neighborhoods they are operating in.
I came away with a good feeling of how they are handling growth, the high quality of the people, their level of transparency, and the care they have for their community and each other. I also observed some areas that may not go as targeted in their goals and timelines – acquisitions for example, but still appreciate their ambitiousness and adaptability.
Performance Update 4 (August 3, 2017)
I am a little later than I hoped in writing this update. I received my Q2 2017payments and reports nearly a month ago, but this is the first chance I’ve had to write.
Again, the returns I report below are annualized from the date of 100% occupancy and rounded to the nearest 1/10 of one percent. Portfolio 5 only has one month of full occupancy, so I would say the returns are skewed to the upside. I expect to see more modest returns in the future. Just look how Portfolio 3 has come down from the previous quarter. It is also worth noting that Portfolio 1 has been in a downward trend for at least 6 months. Last quarter was a particularly hard hit, with three (of 10 homes) having expensive turnovers. Now back to full occupancy, I am hopeful that the rest of the year will be better for P1, and the trend will reverse.
Portfolio 1 (18 months): 9.7%
Portfolio 2 (14 months): 11.1%
Portfolio 3 (6 months): 10.6%
Portfolio 5 (1 month): 13.5%
I now have full quarter income on both debt portfolios, one a SFR, the other an apartment complex. For Portfolio 4 this is the first quarter full quarter of full occupancy, and the income is up to nearly the expected range of 9-10%. The apartment complex is still any number of months off from being fully stabilized, and the payment I received is purely interest on the debt.
Portfolio 4 (4 months): 8.7%
Portfolio 6: received 8% interest payment
As I write the company is taking investments in their second apt complex. This one a 50 unit, that is already 90% occupied, and an equity portfolio. It is their largest offering yet, by far. It also has the largest minimum investment of $20,000. I am considering whether to invest, and will cover that decision – yay or nay, when I next report.
Performance Update 4 (Nov 7, 2017)
Q3 2017 payments and reports were paid on time again last month
I am adding some additional tracking information. In addition to the reporting the annualized returns from the date of 100% occupancy, I am also adding a tracking of just the last reported quarter in brackets ( ), also annualized and rounded to the near 1/10th of 1%. This will give readers a clearer idea of the fluctuations that occur in returns.
Portfolio 5 now has its first full quarter full occupancy. All other Equity portfolios, multiple quarters, including 1 & 2, which are both well over a year.
Portfolio 1 (21 months): 9.5% (8.2%)
Portfolio 2 (17 months): 11.6% (13.8%)
Portfolio 3 (9 months): 10% (8.3%)
Portfolio 5 (4 month): 12.2% (13.3%)
Portfolio 4 had a good return this last quarter and is now squarely in the projected cash flow return range of 9-10%. Portfolio 6, the apartment complex was at 74% occupancy as of the end of the quarter. Remaining renovations on vacant units which were burned out at purchase, are now being completed, with a waiting list of tenants being developed for those units and others that are turning over. Exterior renovations have been completed on this value add multiplex. It looks likely to be fully stabilized early next year.
Portfolio 4 (7 months): 9.4% (10.4%)
Portfolio 6: received another 8% interest payment
My 7th Investment
As I wrote about in my previous update, I did make a decision to invest in the 2nd apt complex this company offered - a 6 building, 50 unit mix of 1, 2 bedroom, and a few 2 bedroom town homes. By a factor of nearly 3, this was by far the company's largest offering ever, and it took them months to get it filled. I took my time in making this decision, and got in toward the end of October when I was in the city again for another REI visit. I took another look at the property.
My investment came well after the company took possession of the property, initially putting a lot of their own funds in. By the time of my investment some of the limited scope of work had already been completed, and I believe the occupancy was already 94%. This was an Equity portfolio, an all cash deal, and I will be calling this my Portfolio 7. It is structured differently than any previous offering, with a preferred return of 8% to investors plus a 75% share of net rental income once the preferred is paid. 75% of profits from sale also go to the investors. They plan to refinance this property 12-18 months after possession, to return most (maybe 75%) of invested capital to investors.
Just today they announced they are taking reservations for a 3rd multiplex they just put under contract. Details won't come out until later in the process. Stay tuned.