Have I Found the Holy Grail of Passive Real Estate Investing? (Part 4)
I am starting this Part 4 of the series in part because it is a new year. More substantially the company I have been investing and writing about has made a very significant shift in their model. Both the type of assets and the purchase structure have changed dramatically from what they were when I started investing with them more than two years ago. I will address that and more in a moment, but first my quarterly investment and performance update for the last quarter of 2017.
Q4 payments were made on time. Quarterly reports made available as well.
First bracket () is number of months since fully occupied. First percentage is annualized returns since that time. Second bracket is annualized return for the last quarter.
Portfolio 1 (24 months): 9.1% (3.6%)
Portfolio 2 (20 months): 11.3% (10.1%)
Portfolio 3 (12 months): 9.6% (9.4%)
Portfolio 5 (7 month): 11.9% (9.9%)
Portfolio 7 (not yet): exceeded 8% preferred
Portfolio 1 has continued its downward trend - worse quarter performance yet. The company reported that there are two vacancies. They have renovated them and started to market at least one on the MLS. Market conditions are favorable for doing so. I'm told the first one listed had multiple offers close to asking within a few days of the listing. This is the first implementation of any kind of exit strategy for any of these portfolios. I am excited to see how this goes.
Portfolio 7, the 50 unit multifamily, my most recent investment, had 84% occupancy at the end of the quarter, reflecting some turnover renovations to be marketed at new rates. This first payout came a little under the 8% preferred, which they will make up in future payouts. However, the timing of my last minute investment actually resulted in a higher percentage return for me.
Portfolio 4 (10 months): 9.1% (8.2%)
Portfolio 6 (not yet): received another 8% interest payment
Portfolio 6, my first apartment complex remained at 74% occupancy as they had some turnover at the end of quarter, which they are renovating and marketing at higher rental rates. Apparently the renovations on the burned out units, which are complete gut to stud renovations, went a little slower than expected, but are now near completion. They are expecting to reach well above 90% occupancy within a few months. My best guess is this property will also be refinanced (via bank) by the end of the year.
When I first invested with this company over two years ago, the offerings were made of Equity portfolios of 10 SFR. These homes were first acquired by the company prior to the offering to investors. Purchases and renovations were all done with cash and were completed well under the estimated ARV of the homes. These were particularly attractive to me for using self-directed retirement funds which needed to be passive investments. Being cash purchases my investments would not be subject to UBIT or any tax obligation.
In the year that followed (2016) the company added Debt portfolios to the mix, and last year expanded into medium size multiplexes, with the goal of doing many more. The first multiplex (my portfolio 6) was a Debt portfolio - ie: we investors were lenders, that also included 3 year seller financing. The second (my portfolio 7) was an Equity portfolio and was, like all the SFR portfolios, an all cash buy. The plan was to do a value add and then refinance with a commercial bank loan 18 months or so into the deal.
Then toward the end of last year they announced a decision to invest in only multifamily in 2018 and beyond. This is quite a progression, and must be discerned from the investments I’ve been writing about up until now.
Their most recent offering (their third multiplex), is one in which I did not make an investment. However, it is likely the clearest example of what we investors can expect going forward. The offering was a raise for the down payment & minor renovation costs on an 81 unit complex. This marked the first offering where the purchase was being leveraged with a commercial bank loan, 75% LTV - a stark contrast to all the cash investments of the SFR portfolios.
The leveraging likely makes possible the bit higher projected returns of 10-13% cash on cash, with 18-22% IRR. Those projections are based on investor payout of 8% preferred, with a 75% share of net rental income once that 8% is paid out. Investors also receive 75% of profits upon any sale. I believe there were some acquisition and sale fees paid to the company built into the deal. These fees were typical of what I have seen in other multiplex syndications. The minimum investment was $20,000, and the company has made it clear that will be the baseline minimum going forward, and in some instances could be higher. That is twice the minimum on every one of their SFR portfolios, but in line with another multiplex (my Portfolio 7).
Leveraged acquisitions do provide for better ROI projections, but they also carry additional risk exposure should things go south on the asset. Also some retirement fund investments can be subject to some tax obligations such as UBIT.
From my view, the shift away from the SFR was largely precipitated by the increasing difficulty for the company to acquire enough distressed properties at a price point that could work for the model. The demand and shrinking availability of these properties became abundantly evident last year. The flip side is that is an opportune time to sell some of these held assets. And that is just what they are starting to do. As mentioned above they are selling two of the recently vacated properties in my Portfolio 1, which they expect will result in a considerable improvement in the returns on this portfolio. They have also indicated an ongoing consideration to sell other SFR from various portfolios as they become vacant.
Today this company is considerably more matured then when I started investing with them. They have a multiyear track record, multi-millions in assets, and have the ability to obtain commercial bank loans at favorable rates - something they simply couldn't do when they started out.
Still, much of what I initially considered unique and attractive about this company has changed and for future investment consideration I will be evaluating differently. Today they are more like many other multiplex syndicators I've seen, albeit via crowdfunding platform and open to non-accredited investors, which most are not. In addition, I have a track record with them, and they have consistently performed over multiple years. From my perspective, they likely do retain some fairly distinct advantages.
To assist me and my readers in evaluating of future offerings compared to those of yesteryear I have created the following table of comparisons.
Lots to consider, watch this space for future updates.
First Quarter, 2018 - Update
First bracket () is number of months since fully occupied. First percentage is annualized returns since that time. Second bracket is annualized return for the last quarter. Unbracketed percentage is the annualized return since full occupancy as of 4/30/18:
Portfolio 1 (27 months): 9.0% (9.7%)
Portfolio 2 (23 months): 11.5% (13.3%)
Portfolio 3 (15 months): 10.2% (12.2%)
Portfolio 5 (10 month): 11.5% (9.3%)
Portfolio 7 (not yet): Paid a bit under the 8% preferred
Portfolio 1: Two vacant properties were listed for sale, one is in escrow, the other didn't get much traction and his being put back on market for leasing. Even with these two properties not bringing in any income for the quarter, the portfolio as a whole really picked up for the first time, turning around a year long trend.
Portfolio 7: This 50 unit complex has reached 88% occupancy, and the managers are expecting it to reach 95% with a couple of months.
Portfolio 4 (13 months): 9.1% (9.9%)
Portfolio 6 (not yet): received another 8% interest payment
Portfolio 6: Reported to be 85% occupied, and told to expect 95%+ within a couple of months.
Second Quarter, 2018 - Update
I have lots to report for this quarter, for it was like no other. The good news is that during this quarter five properties in Portfolio 1 were offered for sale and went under contract. One closed in Q2, three others closed on July 2, and last one closed later in July. So, just the one impacted the Q2 return of capital and profits, and the rest will impact Q3. However, I received a report of the total ROI on all 5 properties that have closed, and share some of those numbers below. As a whole the annualized returns on these sold properties is very positive, and a good first indication of achieved IRR.
Then I have frankly disappointing news to report. This quarter was by far the worst performing quarter for the company as a whole. For net rental income distributions every portfolio under performed. A couple of my holdings had no distributions at all for the quarter, which was previously unheard of with this company. I reached out to one of the co-founders with my questions and concerns, and here is a little of his email reply:
Q2 2018 was the worst quarter for (company), but I am still 100% confident in meeting and or exceeding the investment expectations that we have set forth. We still have very strong holdings, and I'm very confident all of our investments will be profitable and meet these expectations over the long term.
I then had an extended call with that same co-founder to get a more complete picture about what happened and more importantly what was being done to get back on track. To distill down his frank responses, there were essentially two elements to what he called company growing pains. The first was the annual and semi-annual hits on taxes and insurance payments. Those costs particularly hit hard on the multifamily properties this quarter. To address this, going forward they are making changes by internally escrowing (holding) on a monthly basis funds to cover these things, much like a mortgage servicer does impounds. The expected effect is one of leveling out the average monthly net returns and quarterly distributions.
Second, they have had turnover in the areas of property management led by their high performing Property Manager (PM) being recruited away, and the quality leasing agent taking on the job. This all led to what I gather was a sharp downturn in PM and lease up performance. The good news is that at the time we spoke, he reported that they were solidifying an agreement to bring back the PM, which would allow the one time leasing agent to return to that job. So, at this point, I’ve got my fingers crossed it all works out. What I do continue to have confidence in is the level of company transparency and ability to address issues as they arise.
First bracket () is number of months since fully occupied. First percentage is annualized returns since that time, as of 6/30/18. Second bracket is annualized return for the last quarter.
Portfolio 1 (30 months): 12.5% * (4.5% plus returned 10.6% of my invested capital)
Portfolio 2 (26 months): 10.7% (3.3%)
Portfolio 3 (18 months): 10.2% (4.4%)
Portfolio 5 (13 month): 8.8% (0% as in no distribution)
Portfolio 7 (not yet): No distribution this quarter for this apt complex.
Portfolio 1: These calculations are still rough, but the total investor ROI for the 5 sold properties averaged approximately 52%, with an average annualized return of 18.9%. This rate of return is toward the top of range of the 12-20% IRR projected for the entire portfolio. This is very promising for this first executed exit strategy of any of the holdings. Of course, five of the properties will continue to be held for rental income, and reportedly not sold for some time. So it is too early to know what the final IRR will be for the investment as a whole. *The 12.5% annualized return will be subject to adjustment once capital return is properly accounted for, and next quarter when the additional sale profits are factored in.
Portfolio 5: Reason given for no distribution for quarter was that there was no operating cash flow due to turn costs on two properties plus tax payments.
Portfolio 7: This 50 unit complex reported still at 88% occupancy, and the managers are expecting it to reach 95%+ with a couple of months. This is a repeat of what they said last quarter, and reflects the property management difficulties I discuss above. Reasons given for no distribution were property taxes, annual insurance premium and turn costs on units.
Portfolio 4 (16 months): 8.7% (7%)
Portfolio 6 (not yet): received another 8% interest payment
Portfolio 6: 41 of 46 units now occupied (89%+), and told to expect 95%+ within a couple of months.
Third Quarter, 2018 - Update
Unsurprisingly, both the positives and negatives originating in Q2 continued to play out this quarter. In Portfolio 1, four sold properties resulted in a hefty return of capital and very nice profits. On the negative side, two of my portfolios had no distributions at all. The good news is that the company successfully recruited the one time property manager and in September she returned as the new COO. The expectation is that she will be able to get things back on track to a very efficient system. She once managed 3,500 units, and is very highly regarded. Time will tell, but I am cautiously optimistic that the turnaround will play out soon.
First bracket () is number of months since fully occupied. First percentage is annualized returns since that time, as of 9/30/18. Second bracket is annualized return for the most recent quarter (Q3 18).
Portfolio 1 (33 months): 13.6%* (64% plus returned additional 44.3% of capital)
Portfolio 2 (29 months): 9.3% (0% as in no distribution this quarter)
Portfolio 3 (21 months): 9.2% (9.2%)
Portfolio 5: (13 months): 10% (Closed out end of Q2, see below)
Portfolio 7: No distribution again this quarter for this apt complex.
Portfolio 1: About 55% of original capital invested has now been returned. With the capital returned and realized profits paid on 5 of the 10 original properties, these calculations are still rough in determining the true ROI, but things are looking good on the executed exit strategies thus far. One additional property is for sale and the managers report they are looking for best ways to sell the remaining properties in the portfolio. *The 13.6% annualized return will be subject to adjustment once capital return is properly accounted for.
Portfolio 2: Had 4 properties (of 10) vacant at end of quarter. Along with renovation costs to make ready for new tenants the managers reported there was not enough cash flow to make a distribution. Two properties are for lease with pending applications, other two will be marketed for lease soon.
Portfolio 5: This was one of only two portfolio investment from my personal, not retirement funds. As I needed to raise some capital for an unexpected business expense, I asked to exit this portfolio at the end of Q2. The company complied by offering it as a straight transfer to another investor already in the portfolio. It was picked up within a few hours of the offer going out. To cover the extra administrative work, I paid a small fee that was equivalent to 1.33% of my investment, but other than that received all my capital back. Nearly an 11% total return over the life of the investment over 17 months, it was 7.7% annualized ROI. Not bad for an investment I had to pull out of early.
Portfolio 7: This 50 unit complex reported dropped to 80% occupancy with more move outs then move-ins. The managers attribute that to their poor management efficiency for the last couple of quarters. They don’t expect to meet the 8% preferred return for this year, but will make up the difference next year, possibly with the cash out refinancing.
Portfolio 4 (19 months): 8.8% (9.5%)
Portfolio 6: received another 8% interest payment
Portfolio 6: Just above 90% rented out, and told they plan to execute a bank refinance between December and February.
Fourth Quarter, 2018 - Update
This is for the last quarter of the under performing year (2018) for most of my portfolios. For this quarter two of my portfolios had no distributions at all. The promising news is that there are strong indications that things are turning around and 2019 will be much better. Portfolio 6, a debt portfolio, has entered the refinancing stage. This is the first time the company is executing this type of exit strategy on any of its holdings.
First bracket () is number of months since fully occupied. First percentage is annualized returns since that time, as of 12/31/18. Second bracket is annualized return for the most recent quarter (Q4 18). All reporting are as of end of 2018.
Portfolio 1 (36 months): 12%* (0% as in no distribution this quarter)
Portfolio 2 (32 months): 8.4% (0% as in no distribution this quarter)
Portfolio 3 (24 months): 9.1% (7.9%)
Portfolio 7: (84% occupancy): 8% preferred* (2.7%)
Portfolio 1: The driver behind no distribution this quarter is vacancy and turn costs. Of the 5 remaining properties in this portfolio, two are being marketed for rent, one is for sale, and two are occupied. The managers are looking at options for selling the remaining properties in this portfolio. *The 12% annualized return will be subject to adjustment once capital return is properly accounted for.
Portfolio 2: During Q3 & Q4 there were six move outs. All but one of them is now rented. The one up for lease already has 2 pending apps. So, this portfolio looks good going forward.
Portfolio 3: 8 properties currently occupied, one being marketed for rent, and another just vacated.
Portfolio 7: This 50 unit complex had 9 move ins and 6 move outs during Q4. Current occupancy at end of year was 84% (90% by Jan 31st), which is an improvement from previous quarter. Existing units when turned over proved to be in worse shape than known, and thus more costly to turnover then anticipated. Thus the small distribution. The managers say the amount of the 8% preferred return that was not paid in 2018 will carry over to 2019 and be paid to investors from the proceeds of the refinance. They are now estimating that to be in 6 months. Given that their timeline forecasts have been consistently over optimistic, I’d venture it will be at least a little longer than that, maybe close to the end of the year.
Portfolio 4: (22 months): 8.7% (8.9%)
Portfolio 6: (apt complex at 91% end of year and 100% on Jan 31st) received another 8% interest payment
Portfolio 4: 9 properties are occupied and one is in process of turn for re-leasing.
Portfolio 6: With pre-leased units (includes approved tenants who have yet moved in) occupancy is at 93.5%. They have started the refinance of the property, which they hope will close within 60 days. They expect the vast majority, possibly all, of invested capital to be returned to investors with this refinancing. This is an exciting prospect, as even if all capital is returned, investors will continue to receive 25% of rental cash flow and 50% of profits on any sale.
Q1 2019 - Update April
This is for the first quarter of what is promising to be a turn-around year after 2018’s underperformance for most of my portfolios. Across all my portfolios occupancy is way up for this quarter, particularly in the two apartment complexes. Exit strategies in two of the portfolios are proceeding to be executed. Still, cash flow wise this was another underperforming quarter. I get into some of the details below.
First bracket () is number of months since fully occupied. First percentage is annualized returns since that time, as of 3/31/19. Second bracket is annualized return for the most recent quarter (Q1 19). All reporting are as of 3/31/2019.
Portfolio 1 (39 months): 15%* (0%)
Portfolio 2 (35 months): 8.5% (3.1%)
Portfolio 3 (27 months): 8.7% (3.3%)
Portfolio 7: (apt 100% occupancy): 8% preferred* (4.9%)
Portfolio 1: Three more properties were sold in February, which leaves just 2 properties in this portfolio. The three properties were sold on contract, and the company says these will average 18% to 21% ROI to investors when the loan balance is paid off in one to three years. They are working on selling the remaining two properties, one of which is occupied and the other vacant. They explained that costs of sale and selling on contract made for no cash flow distribution for this quarter, as the small down payments just covered costs. *The 15% annualized return will be subject to adjustment once capital return is properly accounted for.
Portfolio 2: 9 properties are occupied, 1 vacant, but this followed 6 move outs in the last two quarters of 2018. The company says this portfolio is getting back on course, but it still underperformed cash flow wise Q1 due to vacancy and turn costs.
Portfolio 3: 9 of 11 units (one duplex in portfolio) currently occupied. One property is ready for lease, and another is finishing turn process.
Portfolio 7: Currently 100% occupied which is a total turnaround from late 2018. Still playing catch up on receiving full preferred return, but this was the 2nd quarter there was actually a distribution after the dry hole of cash flow in the 2nd half of 2018. *When the preferred return is not met in distribution, it is carried over, and to be made up later, most likely from the proceeds of the refinance.
Portfolio 4: (25 months): 8.6% (9.5%)
Portfolio 6: (apt complex at 93.5%) received another 8% interest payment
Portfolio 4: All 10 properties are occupied.
Portfolio 6: Current occupancy is at 93.5%. It actually reached 100% the end of February, but they had a few move outs in March. A refinance loan with Freddie Mac is proceeding, which the company hopes to close by end of Q2. Freddie Mac wants to see longer operating history above 90%.
Q2 2019 - Update August
First, I am very late in posting this update in large part due to the fact that the company had a major website update. Once the update was in place, it took some weeks to populate with the all the historical and current reporting. Actually all the portfolios are not yet fully populated, but I have enough info to make the update.
First bracket () is number of months since fully occupied. First percentage is annualized returns since that time, as of 6/30/19. Second bracket is annualized return for the most recent quarter (Q2 19). All reporting as of 6/30/2019.
Portfolio 1 (42 months): 14.3%* (No income distribution, but returned another 6.8% of my original capital investment)
Portfolio 2 (38 months): 8.5% (3.1%)
Portfolio 3 (30 months): 8.7% (4.4%)
Portfolio 7: (apt 96% occupancy): 8% preferred* (5.8% actual distribution)
Portfolio 1: One more property in this portfolio was sold, leaving just one property left in the portfolio, which is currently vacant and for sale. The only distribution this quarter was a return of capital due to the sale. *The 14.3% annualized return will be subject to adjustment once capital return is properly accounted for, which is not yet reflected in the new website.
Portfolio 2: All 10 properties are occupied as of 5/1/19, but this followed enormous turnover costs during the first two quarter. The result, there was no distribution at all this quarter, but company indicates the second half of the year should be back on track.
Portfolio 3: All 11 units (one duplex in portfolio) are now occupied. This should lead to better returns in the second half of year.
Portfolio 7: Income is growing month after month the company reports and that is reflected in a slightly higher distribution. Still they are still catching up to paying out the preferred return. *When the preferred return is not met in distribution, it is carried over, and to be made up later, most likely from the proceeds of the refinance or sale.
Portfolio 4: (31 months): 8.6% (8.8%)
Portfolio 6: received another 8% interest payment
Portfolio 4: All 10 properties are occupied, and this debt portfolio continues to be a consistent performer.
Portfolio 6: Current occupancy was not fully reported. Some state income taxes were taken out, even though mine is a retirement account investment. I was told those funds will be distributed after the end of the year accounting. This quarter the company made a decision to not take on the debt risk of a refinance, and instead sell the property in what is a very good market to sell. It is under contract and currently expected to close at the end of August, and at a considerable profit. They also have a back-up offer at the same price, should the first buyer be unable to close due to financing. I am actually looking forward to seeing this sale play out and what kind of ROI will be achieved. Hopefully I will be able to report on that successful sale and distribution in the next quarterly update.
Q3 2019 - Update November
Again, I am very late in posting this update. This time it was mostly due to a my waiting for the final profit report and distribution to come through on Portfolio 6 and its completed sale. That finally came through a couple weeks ago. Details of this completed sale of an apartment complex and returns is the most exciting news I have to report for this quarter.
First bracket () is number of months since fully occupied. First percentage is annualized returns since that time, as of 9/30/19. Second bracket is annualized return for the most recent quarter (Q3 19). All reporting as of 9/30/2019.
Portfolio 1 (45 months): 12.6% (0%)
Portfolio 2 (41 months): 7.6% (5.8%)
Portfolio 3 (33 months): 8.3% (6.3%)
Portfolio 7: (apt 92% occupancy): 8% preferred* (6.4% actual distribution)
Portfolio 1: Capital return has now been properly accounted for in the annualized IRR. Capital return is about 62% of my original investment in this portfolio. Just one property left in this portfolio that remains unsold. The company reports it is advertised for sale and they have one very interested party. As previously reported there are 3 other properties that were sold under contract. Eventually they should produce some cash flow and eventually return of capital.
Portfolio 2: Two move outs during September, leaving both properties vacant at end of quarter. They are being made ready for new tenants. These move outs meant the portfolio fell short on net cash flow and will likely impact Q4 as well.
Portfolio 3: All 11 units (one duplex in portfolio) are still fully occupied. Company reported that this portfolio had a good quarter.
Portfolio 7: This apartment complex went under contract to a buyer during Q3 and.is expected to close in Q4. That will result in a full return of capital, the balance of preferred returns owed, plus a share of profits to myself and the other investors.
Portfolio 4: (34 months): 8.6% (9.8%)
Portfolio 6: Sale was completed for return of capital and profit share.
Portfolio 4: This portfolio reportedly had a great quarter, and has been a consistent performer.
Portfolio 6: This was the first portfolio, and apartment building, the company fully exited. How’d they do? Their projections were for an IRR of between 15.1% and 19.3%, and they claim the return fell at 16.3% annualized IRR. However, when my calculations didn’t fall in line with that, I learned from one of the managers, that both the projections and the claimed final IRR were calculated pre-tax (state income tax), while I received the after tax income only. What I received was more like 14% IRR. I confess that it was frustrating to learn that this tax was taken prior to payout to investors, as this investment is by a retirement account and should not be subject to income tax. However, as it is a debt portfolio, the partnership that actually owned the building had to pay the tax prior to paying the debtors (investors). That said, I learned something valuable from this experience and am largely satisfied with the results of this completed investment.
Q4 2019 - Update January 2020
This quarter saw the close on sale of another of my apartment portfolios, Portfolio 7. This was my only other apartment portfolio, so now all of my remaining investments with this company are based on their original model of 10 SFR in debt free portfolios.
First bracket () is number of months since fully occupied. First percentage is annualized returns since that time, as of 12/31/19. Second bracket is annualized return for the most recent quarter (Q4 19). All reporting as of 12/31/2019.
Portfolio 1 (48 months): 12% (0%)
Portfolio 2 (44 months): 7.3% (4.6%)
Portfolio 3 (36 months): 9.1% (6.5%)
Portfolio 7: Sale was completed for return of capital plus delayed preferred return, plus profit share resulting in a 10.8% IRR.
Portfolio 1: The last property in this portfolio is currently under contract for seller financing, just awaiting buyer to come up with the down payment to close. The company reported that interest income collected on the 3 properties sold under contract fell about $1,000 short of the negative balance on this account at the beginning of the quarter. That is why there was no distribution this quarter, closing out an entire year where there was no earnings distribution. The only distribution was return of capital.
Portfolio 2: This portfolio had several move outs during the quarter and with turnover costs fell well short of projected income. Company expects full occupancy by end of Q1 2020.
Portfolio 3: Company reported that this portfolio had a good quarter, but still there were 2 vacancies (of 11 units) at the end of the quarter. Distribution for the quarter was below projections.
Portfolio 7: So, the company decided to sell this apartment complex instead of refinancing, as initially projected, due to the under performance of the portfolio and the fear of taking on too much debt. I am glad they did so as I agreed the risk reward of refinancing was not worth it. While this near 11% annual return on my investment was way under the target of 16-18%, I am glad it delivered returns as well as it did, and happy to be out of this investment.
Portfolio 4: (37 months): 8.4% (9.8%)
Portfolio 6: SOLD, see previous quarter’s update
Portfolio 4: This is the only remaining debt portfolio had another great quarter, and continues to be a consistent performer.
Q1 2020 - Update May 2020
This quarter closed with the Covid19 pandemic emergency in full bloom. As a result the portfolios managers made a decision to prepare for what might be coming and suspend distributions as a measure of safety in case tenants should fall behind on their rent. I consider that a prudent decision given the large scale uncertainty. Accordingly I will skip the ROI reports, and just share descriptive updates for each of my remaining 4 holdings I have with this company.
I should note that all of these, with one exception – a duplex, are single family portfolios, and at the end of the quarter they had a buyer for a large portion of the companies remaining SFR holdings. This includes all of those remaining in my investments with them including the duplex. Unfortunately, that deal is on hold as a result of that buyers financing falling apart under pandemic related uncertainty. At last report, the buyer was still interested in going through with the purchase if and when financing comes back on line.
Portfolio 1: There is just one property left in this portfolio. That property remains vacant. The previous buyer for this property fell through. Now it is being included with the package of SFR properties of the new buyer mentioned above. There are also 4 other properties that were sold under seller financed contracts. Mortgage payments will continue to be collected for those properties until paid off within 3 years.
Portfolio 2: Four of the properties of the 10 were renovated and leased up for 100% occupancy by the end of quarter. However the turnover costs ate up any potential cash flow for the quarter. With full occupancy, they are now poised for a good Q2 cash flow, assuming tenants manage to pay all under the COVID 19 restrictions.
Portfolio 3: Full occupancy of all 11 units (this is one with the duplex) by the end of the quarter. There were apparently two turnovers during the quarter, including one that need major renovations. All in all, the company reports cash flow was reduced by about 70% for the quarter.
Portfolio 4: This debt portfolio had another great quarter, with nothing out of the ordinary. It continues to perform the most consistently of any of my holdings with this company.
Q2 2020 - Update July 2020
As the pandemic emergency continued throughout this second quarter (and beyond) the company did feel comfortable enough to make distributions this month to cover both those held back for Q1, as well as Q2. They did report that there rent collections are down for all their single family holdings due to Covid19 job losses. They are collecting about 80% of rents owed during the month, down about 10-15% from pre-Covid times. 60 day collections are about 90%, which is also lower than normal. Three of the four portfolios had distributions, only one of those came close to normal.
The buyer for all the single family properties in these portfolios I still hold fell through due to the inability to obtain financing, which is also Covid related. At this point the company is moving forward with selling all held single family properties either individually or in small groups.
Portfolio 1 (54 months): 11.3%* (0%)
Portfolio 2 (50 months): 6.7% (1%)
Portfolio 3 (42 months): 7.7% (3.6%)
Portfolio 1: There is was no distribution for this quarter, as the single property left in this portfolio was renovated to prepare for sale. The cost of renovation exceeded any interest income from the 4 properties that are under seller contract. That remaining property is under contract under favorable terms. It is expected to close within 30 days. That close should result in a return of principal on that home, plus some nice profits to us investors.
Portfolio 2: The Company reported a good Q2 for this portfolio with on budget net income and 100% occupancy. However Q1 had a net loss, with turnover costs and getting ready for new tenants. Thus, the underwhelming distribution.
Portfolio 3: The Company also reported a good Q2 for this portfolio. Also has 100% occupancy. Again, Q1 had turnover costs and some renovation on one property. Distribution is for both quarters as is also under normal for two quarters.
Portfolio 4: (43 months): 8.7% (9.3%)
Portfolio 4: This debt portfolio had good quarters for both Q1 and Q2, and the distribution was in line for both quarters in what would be expected during normal times.
Q3 2020 - Update October 2020
As per last quarter, the company continues collecting about 80% of rents owed during the month, down about 10-15% from pre-Covid times. 60 day collections are about 90%, which is also lower than normal. The company reports that overall Covid-19 job losses have impacted these single family holdings, and impacted their bottom line. Still there were some decent distributions for this quarter.
Portfolio 1 (57 months): 9.9%* (0%)
Portfolio 2 (53 months): 6.9% (11.2%)
Portfolio 3 (45 months): 7.8% (9.6%)
Portfolio 1: No distribution for this quarter. Still one property left in this portfolio, which they have had trouble selling as a vacant investment property. They are looking at selling this home under contract where they take a decent down payment and hold the note for one to three years. Still collecting mortgage and interest payments on 4 properties previously sold this way. NOI on this portfolio was positive for the quarter, but no cash for distribution due to the repairs made on the remaining property.
Portfolio 2: There was a good quarter for this portfolio. Income was up and expenses down, resulting in one of the best distributions in some time.
Portfolio 3: The Company also reported a good Q3 for this portfolio wit 100% occupancy.
Portfolio 4: (46 months): 9.6% (13.6%)
Portfolio 4: One property was sold from this portfolio during this quarter for a very healthy profit, resulting in a capital return of 8.79% of my investment. The profit was at an annual rate of nearly 17% and boosted the income distribution of this portfolio for the quarter to the 13.6% annualized rate.