This is one of our recent projects we were evaluating and what this might look like for a private investor who participates.
I wanted to give people some insight into what a partnership in an apartment community with us might look like for the equity investor….
In this example we have a 68 unit property in Tucson Arizona. Tucson is on the upswing right now. The economy is doing very well with new businesses and jobs moving into the area and a extremely high demand for rental units…
What this means for us as owners in this market is increased rents going forward and low vacancy rates. Tucson is also a market that is affordable compared to many of the other markets nationwide.
So what we have here is a property that was managed by the owner and even though they did an admirable job, there was allot of waste and over spending that we would plan to recapture…
Our business plan is as follows:
Acquiring this property presents the investors a unique opportunity to acquire a well maintained undervalued assets in one of the best apartment building submarkets in the country.
The opportunity as we see it is the fact the property has been self managed by the current owner. Due to this, we feel that there is significant upsides in rents as well the ability to put in place a moderate RUBS program to recapture a portion of the utilities expenses. The current owner has not kept up with market rents and thus, the current rental rates are on average $100 per unit below market rates.
In addition to this increases in income, we feel there is also a significant opportunity to reduces the overall expenses of the property through utilizing a professional property management company with extensive experience in the area.
Based on this assets positioning within the competitive landscape of the submarket, the subject property offers the opportunity to create future value through strategic interior renovations and corresponding rent premiums.
Future opportunity to reposition the living space by integrating resurfaced countertops, upgraded lighting and plumbing fixtures, two-toned paint, resurfaced cabinets with hardware, as well as wood-style vinyl flooring throughout each apartment home.
In addition, the community is not currently taking advantage of energy efficient standards. Tucson is currently offering a $75 rebate towards the cost of high efficiency toilets to help promote water conservation. The installation of high efficiency toilets, showerheads, aerators, and other water .The installation of high efficiency toilets, showerheads, aerators, and other water saving products will help reduce utility expense, and increase net operating income.
Combining all these points, Rents, Rubs, Management and light rehab of the units. We anticipate an long term increase in NOI by $135,000 annually. With a sales price at a conservative 7 cap, this would increase the value in the property by $1.6 million dollars over the coming years of ownership. These increase in NOI and value are outlined below.
Here you will see the change in NOI from what it is currently operating at and what are projections are once the property is stabilized…We feel this could be done in a 2-3 year time period.
In this particular example The asking price is $3.3m. The negotiated purchase price is $2.9M. We are seeking a total investment of $1.1M with a minimum of $100,000 per investor. Investors receive 70% equity with projected Internal rate of return (IRR) of 15.59% over the life of the investment.
Cash flow distributions will be made quarterly. The above estimated returns are based on refinancing the property after 4 years and returning nearly 100% of the investor capital after year four while holding the property for up to 10 years.
After investor capital is returned, investors will continue to receive quarterly cash flow distributions until the point at which the property is sold!
Investors should be prepared to leave their money in for a minimum of 5 years, even though there is a possibility to re-finance and repay the investor’s principal before then. If an investor decided they don’t want to participate longer than 5 years, there is a provision in the private placement memorandum where the other shareholders will be able to buy that investors shares and buy out their interest
Once we re-finance or sell the property, investors first receive their principal back, then they will continue to receive 70% of available cash flow and 70% of the profits upon the sale of the property. How this is done is shown in the financial analysis section contained in this document
Here is what it looks like once the property is refinanced in year four and almost all the initial investment is returned to the invest…Even after the initial investment is returned…the investor remains and owner in the property, receiving quarterly cash flow payments and capital gains once the property is eventually sold! In this example the IRR of the project is estimated at 15.70%
Take not of the investor capital being returned in year four while the investors continuing to receive quarterly cash flow distributions and profits upon sale.
Disclaimer: The rates of return displayed on this page are only projections, and are not guarantees of any sort. Actual returns ay vary widely, due to many economic and marketplace factors beyond our control.
This is just a snapshot of this particular deal. I would be happy to discuss in more detail all the finer points. This example highlights how these types of partnerships work.
If you would like more information about this or one of our future projects, give us a call at 510-863-1447
www.JBrealestaterinvestments.com
No comments yet.