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.
Q4 2020 - Update February 2021
This quarter had a whole lot of activity for my holdings with this company. All four had sales of SFR including Portfolio 1 in which the last property remaining sold. In addition, all the seller funded loans on previously sold Portfolio 1 properties were paid off, and the portfolio was closed out.
Now three of the seven portfolios I’ve reported on with this company have closed out. Another one I exited some time ago, selling my shares to another investor. That leaves me with just three of those seven left to report on going forward.
However, for the first time in years, I invested in a new portfolio with this company. This is actually a new build of a 55+ (senior) apartment village complex and thus likely won’t have any cash flow any time in 2021. I shall call this Portfolio HV. More details below.
As per the previous Covid-19 quarters, the company continues collecting about 80% of rents owed during the month, down about 10-15% from pre-Covid times. 60 day collections are above 90%, which is also lower than normal. Still, as result of the sales mentioned above there were some excellent distributions of earnings and returns of principal for this quarter.
Portfolio 1 (60 months): 10.4% (118.6%) – Now closed.
Portfolio 2 (56 months): 11.2% (29.5%)
Portfolio 3 (48 months): 10.1% (32.7%)
Portfolio 1: With the full close out of this of this portfolio and all properties sold, I achieved a 48.2% total return over the 5 year life of the investment. Given that I had some capital return along the way that made for a 10.4% annualized return (IRR) on my investment dollars. This is a decent return, but fell well short of the company’s target of 12-20% IRR. So it is a bit disappointing.
Portfolio 2: Sale of 7 of the 10 homes in this portfolio resulted in a return of capital of 67% of funds invested. The sales also resulted in an average of annualized ROI of 21.32% spread across all seven. The best performer returned a bit over 30%, the worst at 12% ROI annualized. After an extensive renovation to maximize gain from a retail sale, an eighth property has a pending offer on it, that if closes will net a very substantial profit. The company is also planning to sell the remaining two properties when the timing warrants.
Portfolio 3: Four of the 10 properties, including one duplex, sold in this quarter. This resulted in a return of 38% of my investment capital. Profit from these sales along with rental income had a 21.6% annualized return. Nice.
Portfolio HV: As mentioned this is a new build specialized apartment and village complex designed for senior community living. The company is working in partnership with a developer who has built these senior villages elsewhere, as well as partnering with another investment company. This is a 131 unit development, with retail & restaurant space built in. It is one of the very hottest of Midwest markets, and a new one for me. Although there will be no returns or cashflow this year, there is an 8% preferred return from day one, and 40% of the operating cash flow and profit from sale or refinance to the participating investors. The projections are for returns of 11 to 13% cash flow prior to refinance and total annualized returns of 17%+. Time will tell if these projections are met, but I am excited about this investment.
Portfolio 4: (49 months): 9.1% (10.3%)
Portfolio 4: There was an additional sale of one property in this portfolio, resulting in another 12% return of capital of my initial investment. The sold property had a 9.9% annualized IRR. In addition a third property was sold at the very end of the quarter, and that capital and profit will not be distributed or reported until the end of this current quarter. That leaves 7 properties still in, and like the other, they plan to sell off the rest at advantageous moments to do so.
Q1 2021 - Update
This quarter saw quite a few more sales of the single family homes the company is selling off, but the 3 single family portfolios remaining, still have 1 or more homes in each remaining at the end of the quarter. Anyway capital and profit returns continue to be distributed.
As a result, I was able to turn over some of that return of capital into yet another offering by this company. This one is 160 unit multi-family complex in the Southeast. This is considered a B+ class in an A+ location. The sponsors plan to do a value-add, upgrading units and raising rents substantially. The purchase of this property closed in the last few days of the quarter. So brand new. 7% Preferred Return to investors, plus 70% of operating income to investors. A total projected annual cash flow of 7-9%, and ROI of 15%+ over life of project once sold. I shall call this Portfolio AZ.
Portfolio 2 (59 months): 14.8% (77.9%)
Portfolio 3 (51 months): 11.4% (10%)
Portfolio HV: (3 months): Being built
Portfolio AZ (0 month): Returns next quarter
Portfolio 2: Sale of another 2 of the 3 homes remaining in this portfolio resulted in a total return of capital of 90% of original funds invested. Profit from these sales resulted in an average of annualized ROI of 19.27% for the two. The company is planning to sell the one remaining property.
Portfolio 3: 2 more of the remaining 6 properties, sold in this quarter. This resulted in a return of additional capital, for a total return of 60% of capital. Profit from these sales along with rental income had a 21.6% annualized return. Operating income this quarter was pitiful with 2 of the remaining 4 properties vacant.
Portfolio HV: Progress was made on the launching of the building of this project, and we are still a ways out before it will be completed and produce income.
Portfolio 4: (52 months): 10.8% (9.4%)
Portfolio 4: An additional 6 properties were sold from this portfolio, leaving just 2 homes in, which the company plans to sell as well. They had an average of 16.71% annualized ROI.
Q2 2021 - Update
A couple more sales of the single family homes the company is selling off, with just five single family properties left in my portfolios.
I made investments in another portfolio offered by this company. This was the most unusual portfolio of all, really 3 projects in 1 portfolio. The three are a 281 unit multi-family in one southern state, a 143 unit in another southern state, and a 67 bed upscale boutique hotel project in a town that is a gateway to the Smokey Mountains. This was exciting project to have an opportunity to invest in, and I made my largest investment yet, really 3 investments from different accounts, with this project. The two multi-families are projected to produce a 20%+ cash on cash return over life of projects. The hotel 17%+ cash on cash alone. I will call this Portfolio RHA.
Portfolio 2 (62 months): 13.6% (0%)
Portfolio 3 (54 months): 11.1% (14%)
Portfolio HV (6 months): Being built
Portfolio AZ (3 month): 5.1% (7.5%)
Portfolio RHA (1 month)
Portfolio 2: Just one property left in this portfolio which was under rehab in preparation for sale. This was described as the most extensive rehab the company has done to a SF. There were no distributions in this quarter. 90% of capital has been returned.
Portfolio 3: One more of the remaining four properties, sold in this quarter, leaving three. This resulted in an additional return of additional capital, for a total return of 68% of capital. Profit & cash flow income from that sale was 20.5% annualized. Two of the three properties are occupied at end of quarter, with one vacant. The vacant one has been rehabbed and is under sale contract.
Portfolio HV: The sponsors report great progress on the construction of HV, and thus far seems to be on time for completion for Spring 2022, and certificate of occupancy that summer.
Portfolio AZ: Unit upgrades began immediately after closing, 30 completed and other 19 in progress. 10 tenant move-ins to renovated units with average of $300 increase per unit over previous rents. Exterior improvements are underway as well. I also received the first distribution of cash flow, at a touch over the 7% preferred rate to investors.
Portfolio RHA: Closings on three elements of this project happened in the final days and weeks of the quarter. There is an existing hotel on the lot where the new hotel is being built, and that is set to be demolished mid-July.
Portfolio 4: (55 months): 11.3% (128%)
Portfolio 4: Another property was sold for a total annualized investor return of 21.3% ROI. 88.5% of capital has now been returned. Just one property left to sell in this debt portfolio.
Q3 2021 - Update
I am rather late in posting this last quarter’s update mostly due to a delay in receiving updates from the company’s sponsor partners in the newer projects, which is all the projects I invested in this last year. The partners are bringing the bulk of the capital to the projects and are also the managers in these ventures. This is a sea change in the portfolios of the past, which were entirely this company’s ventures. And this change has led into this much larger projects and vastly different opportunities, which I began to invest in late last year.
One more of the single family homes the company is selling off closed, with just four single family properties left in my portfolios. And one of those is already under contract.
During this quarter, I made investments in two more offerings by this company. The first was a 248-unit, Class A apartment community in another southern state. Occupancy at the time was 96%. The company and their partners are planning this 2007 complex as a value add, that will result in a capture of $300 rent increases over a 3-year time frame. I made two investments from different accounts, one retirement, one not. 7% Preferred and 70% of the operating cash flow and profit to investors. The target IRR is 26-30%, with projected cash returns running 7-30%. The later higher figures after refinancing and return of much capital. I will call this Portfolio PRO.
The second offering I invested in during this quarter came days later and was the same design and developer as Portfolio HV. I made a relatively small, single investment in this 55+ retirement apt village, which is 130 units and in the same state, different city as HV. It will be a new build that is projected to take 12-18 months to complete. It pays investors an 8% preferred return from day one, 50% of the operating cash flow. In all, they are projecting annualized returns of 17%+. I will call this Portfolio HM.
Portfolio 2 (65 months): 12.9% (0%)
Portfolio 3 (57 months): 12.7% (176%)
Portfolio HV (9 months): Being built
Portfolio AZ (6 months): 7.1% (6.8%)
Portfolio RHA (4 months): 6.4% (6.4%)
Portfolio PRO (2.25 months) 4.9% (4.9%)
Portfolio HM (2 months): Being built
Portfolio 2: With just one property left in this portfolio, it operated at a slight loss, so again no distributions this quarter. There were extensive renovations on the property, and it went on the market at a very profitable price. A cash offer was accepted and is now pending.
Portfolio 3: Another of the remaining properties was sold, leaving just two in the portfolio. This resulted in return of additional capital, for a total return of 78.5% of capital. Profit & cash flow income from that sale was 20.8% annualized. One of the two properties remaining are occupied at end of quarter, with one vacant. Company is currently looking for alternative housing for the remaining tenants, so that they can renovate and sell.
Portfolio HV: Sponsors are reporting that despite construction delays in June and July, the project is still trending on time for Spring 2022 completion. Delays were due to volatility in lumber prices. They delayed a purchase until prices “normalized” to lower levels. They stated by delaying the lumber purchase, they were able to save some $550k from the peak prices. Photos of the construction progress were also provided.
Portfolio AZ: Distribution this quarter was at an annualized rate a touch above the 1-year projections. Unit upgrades in this 160-unit property began immediately after closing. Tenants that have come up for renewal have been told they must move out to renovate their units. Although many of these tenants transferred into upgraded units at $300-$400 increased rent, occupancy has dropped to 70%. It is expected to stay artificially low for the next several months as property continues in heavy renovations and repositions itself with a more affluent demographic. Occupancy is expected to rise to 90% in Q2 2022, when the vast majority of upgrades are completed. Building wide exterior, landscaping and common space improvements have also begun.
Portfolio RHA: Distributions from the first full quarter of this 3 project investment came out at 6.4%, which is right in line with the first year projections. This is a little below the 7% (apts) & 8% (hotel) preferred returns. Given that the hotel is in process of being built, the returns are all coming from the two apartment complexes, and on their own, appear to be producing cash flow profits in excess of the preferred returns. The occupancy of two apartment complexes are at 97% & 94%; with 99% and 97% collections for the quarter. Renewals are running at a higher rate over previous leases in both.
On the hotel, the demolition of the pre-existing hotel has begun and reportedly making great progress.
Portfolio PRO: The close on this property happened about half-way through the quarter (Aug 12). Since then, the managers have changed the name of the complex, which they report is getting favorable response from the tenants. Occupancy at end of quarter was 90.3% and 91.5% pre-leased. In September, the property rolled out a Preferred Employer Program which offers waived application and administration fees and a 3% monthly discount. Reportedly this has attracted many potential tenants.
Portfolio HM: Construction work has begun on this project, mostly clearing the 7-acre site, and preparing it for the concrete building pad. Footers are in place along the exterior of the building. A few photos of progress were provided. Reportedly on track for completion in the Winter of 2022/23.
Portfolio 4: (58 months): 11% (4.5%)
Portfolio 4: With only one property left, distribution this quarter was interest only, and was pretty minimal at that. The tenant has been given notice to vacate, and the company is working with them to find alternative housing. Once moved out, the property will be rehabbed and sold.
Q4 2021 - Update
Although distributions are being made in a timely manner on the newer projects, the updates continue to be running quite a bit later. This accounts for my, once again, posting this update 2 months after this quarter ended.
On the older single-family portfolios, there are still three properties left with two being prepared for sale.
During this quarter, I made investments in three more offerings by this company. The first was a 745-unit 4-pack multifamily community in a southern state. The community consists of a mix of traditional multifamily and duplex-style townhomes. It is close to a major state university. The business plan is to renovate 80% of the units in the first two years, for roughly 45% increase in rent. That will bring rents in line with competitive units in the market. The plan also includes a cash out refi in year 3 to return about 84% of investor capital. Cash flow is projected at 7.6-39.7%. The larger return is after the refi. Total IRR projected at 21% annualized. I will call this Portfolio FAY.
The second offering I invested in during this quarter is a 199-unit complex, in a different southern state. Remarkably it has 100% occupancy and was built in 2011. The close on the deal didn’t happen until mid-Feb 22. Renovations of units are planned over a 3-year period for a value add with rent increases of $250-300. On this one, the plan is to return all capital to investors within 2-3 years via a HUD refinance. 2.3% to 12.7% annual cash flow. 23%-24.3% IRR is projected. This will be Portfolio LP.
The third investment was the largest apartment complex yet. Over 1,300 units in one of the largest metro areas in the country. The property was currently 85% occupied, and the purchase price of this 1967 complex was at 35% of the pre-renovation replacement cost. The sponsors plan to renovate 700 units over the first 3 years for roughly a 20% increase from the in place rents. There is also opportunity to gain on even in-place rents prior to renovations, as market rates are 8% higher. After the 3 years of renovations, the managers anticipate getting a refinance to return up to 50% of capital to us investors. 3.6% to 20% cash flow projected, with an IRR of 19.3%-22.2%. I will call this Portfolio NH
Portfolio 2 (68 months): 13.6% (25%) – Closed out 12/31/21
Portfolio 3 (60 months): 12.1% (0%)
Portfolio HV (12 months): Being built
Portfolio AZ (10 months): 7% (6.8%)
Portfolio RHA (7 months): 6.4% (6.4%)
Portfolio PRO (5.25 months) 6.3% (6.8%)
Portfolio HM (5 months): Being built
Portfolio FAY: Closed Nov 11th, no distributions yet
Portfolio LP: Closed Feb 17th, may not have distributions until Q2
Portfolio NH: Closed Dec 22nd, no distributions yet
Portfolio 2: The final property in this portfolio was sold in this quarter, and I received two distributions – the remainder of my capital, and the profit from the sale of the property. Final ROI on entire portfolio investment was 77.32% on the life of the investment. Annualized that comes out to 13.64%, which is at the lower end of the projected IRR range. However, this does not take into account the return of most of the capital over a couple years. A true IRR would come out at least 1-2% higher. As a closed-out portfolio, this one will not appear on future quarterly reports.
Portfolio 3: This portfolio operated at a slight loss this quarter. Thus there was no distribution. While some additional funds were received from the sale of the one property that closed last quarter proceeds were used toward repairs for the remaining two properties in preparation for sale. Both of those properties are now vacant.
Portfolio HV: The construction has made substantial progress despite supply and material costs issues. Exterior walls and interior framing are all in place, with roof on. Photos were provided, and completion is expected late Spring/early Summer.
Portfolio AZ: Cash flow at an annual rate is nearly twice what was projected for the 1st year. An aggressive approach to renovating units as tenants come up for renewal has caused a drop in occupancy to below 60%. If renewing tenants wish to stay, they are moved to renovated units at $300-$400 above their previous lease. The managers report that occupancy is expected to remain artificially low for a few more months and expected to rise to near 90% in Q2 2022. 80 renovated units have already been leased, with another 16 ready to be leased. Several building wide improvements have also been started. All is going very well & on track to be ready to refinance in June/July.
Portfolio RHA: 6.4% returns are right in line with projections for this period. Occupancy with one of the complexes is 99%, the other 92%. On the former, renewals achieved over 1% increase over Q3. Net operating income is exceeding proforma assumptions, and sponsors feel that will continue. On the second complex, ongoing improvement in surrounding market conditions are allowing for significant rent increases to be achieved in both renewals and new leases. Renovations are continuing at full speed, and the renovated units are achieving 40% rent increases, well above initial projections.
On the hotel project, the demolition of the pre-existing hotel is about 70% complete. The city has approved finalized architectural drawings and plans for the new structure. Sponsors report they are on track to complete the new hotel late this year.
Portfolio PRO: Returns for the quarter are in line with projections. Occupancy at end of quarter was 91% and 94.35% pre-leased. Collections continue to be strong and meet the budgeted levels.
Portfolio HM: Construction work is progressing swiftly according to the sponsors. Photos of work in progress were provided. Still expected to be completed in the Winter 22/23.
Portfolio 4: (61 months): 10.2% (6.6%)
Portfolio 4: Distribution was again interest only on the outstanding capital. With just the one property left, and the managers unable to reach an agreement with the tenant for relocating, eviction procedures have been initiated. Once out, a scope of work will be developed to prepare the home for sale.
Q1 2022 - Update
This quarter was another active quarter with one portfolio closing out, and just one single family home left in the last of the 10 home portfolios I started investing with this company back in 2015.
During this quarter, I made an investment in one additional offering, which actually is a two-project portfolio. Both apartment complexes are in different major Southeast markets. One a 228 unit, the other 304 unit. Target IRR for the portfolio is 16.6% to 18.5%. I will call this Portfolio BTC.
Portfolio 3 (63 months): 13.6% (41.7%)
Portfolio HV (15 months): Being built
Portfolio AZ (13 months): 6.7% (6.8%)
Portfolio RHA (10 months): 5.4% (5.5%)
Portfolio PRO (8.25 months) 6% (6.8%)
Portfolio HM (8 months): Being built
Portfolio FAY: (5 months) 3.5% (3.5%)
Portfolio LP: (4.5 months) No distributions yet
Portfolio NH: (4.5 months) 1% (1.6%)
Portfolio 3: This portfolio sold the final two properties, with annualized ROIs of 11.9% and 14.9%. All capital was returned and the final IRR for this investment was at the lower end of the projected at 13.6%. This does not seem to account for the return of capital over time, thus reducing the invested amount and increasing the return on what was still invested. I suspect that would add 1-2% to the IRR in a final accounting.
Portfolio HV: Further progress on construction was reported. While material shortages and manufacturing issues across the nation have also played a role in this project, it construction is still expected to be completed this Summer 2022.
Portfolio AZ: Distributions are running higher than expected for the first two years. Occupancy is running about 55% as the partners are taking an aggressive approach toward renovating units. Every tenant up for renewal has been required to move out to allow renovation. Many have transferred to newly renovated units at $300 to $400 above previous lease.
Portfolio RHA: Distribution as a percentage came out to slightly less than projections for the first time. One of the apartment complexes ended with 96% occupancy, with increased renewal rates. The other complex was at 95% occupancy, a 3% improvement over previous quarter. Renovations are proceeding at full speed, with about $400 rent premiums on the renovated units.
On the hotel project, demolition of old building was completed about 30 days behind schedule. Material shortages have caused the project to assess a completion delay of the new building to be delayed about 9 months. Partners have adjusted completion to late 2023.
Portfolio PRO: Occupancy at end of quarter was at 85%. In line with budgetary projections, but slightly down from Q4. 40% of units have been renovated since acquisition. Effective rental rates are still well below market. Partners anticipate that as renovations continue that rent differentiation will be captured and the project will perform as projected.
Portfolio HM: Construction work is continuing apace. Even with the national materials shortage, partners expect the project to complete on time during the Winter 2022/23.
Portfolio FAY: This was the first distribution for this portfolio and the completion of the 1st full quarter of ownership. Occupancy was at 91.5%. A number of capital improvements as well as unit renovations are underway to stabilize the tenant base, and improve rents and occupancy. Managers feel confident this project will perform to expectations.
Portfolio LP: This complex did not close until about the middle of Q1, delayed from the projected December closing. So there was not a distribution this quarter, but should be for Q2 after a full quarter of operations. Occupancy is at 95%, and no marketing is occurring, as partners are emphasizing renovations. Still new leases were signed.
Portfolio NB: This project did close in December, and Q1 was its first full quarter of ownership. The distribution was minimal, but partners expect that to increase substantially in coming quarters. Occupancy was at 88.5%, a bit above the 86% expected at this point in projections. 30 units (2.3% of property) have been renovated and another 167 units in progress. Two of the renovated units were leased at $235 premiums to unrenovated units. Other capital improvements are also taking place.
Portfolio 4: (64 months): 9.8% (6.6%)
Portfolio 4: The distribution on this portfolio was again an interest only payment on the one single family property left in this debt portfolio. Rental income decreased as tenant moved out. Renovations have begun to prepare the property for sale.
Coming up in the Q2 Update: I have invested in three additional portfolios during this quarter.