2023 Q2 Property Portfolio Update Part I

April 24, 2023

The Capital Stack

Portfolio Property Update Q2

Suburban 36

In July 2022, we acquired the Suburban 36 portfolio for $4.85 million. The portfolio comprises 16 ranch-style units situated in Plymouth, MI, named Plymouth Gardens and 20 townhome units located in South Lyon, MI, known as the Donovan Townhomes.

Plymouth Gardens

At the time of purchase, Plymouth Gardens’ rent roll was $17,790, with full occupancy. We have since carried out cosmetic renovations on several units, leading to lease renewals at higher rates. We recently achieved 100% occupancy and the rent roll has increased to $20,278. Moreover, we have started billing tenants for water, resulting in a cost reduction of $180 per month. Additionally, we have implemented pet fees, adding another $35 per month.

As we continue renovations on unit turns, we intend to persist in passing on the water costs to the tenants, leading to a subsequent increase in our NOI.

The improvements made to the property have resulted in an increase in income, which represents a significant rise in the property’s value by $499,000. Based on a 6.5% cap rate this increase signifies a 22% surge in value compared to the purchase price just 9 months ago.

We have a few more units to get through before reaching our full market rent projection of $22,800. Originally, we projected this to take 24 months to achieve. Our debt for this property is fixed at 4% until 2027.

Donovan Townhomes

At the time of purchase, the property was fully occupied, and the rent roll was $20,040, with an average rent of $1,012. Since then, we have carried out cosmetic renovations on several units, resulting in lease renewals at higher rates. Currently, the property is fully occupied, and the rent roll has increased to $24,950, with an additional monthly income of $140 from pet fees.

Under the previous ownership, the property was paying $470/month for basic cable, which was promptly discontinued by us. There were no complaints from the tenants, consuming our assumption that it was an unnecessary expense. This decision added approximately $90,000 to the property’s value.

The improvements made to the property, such as increased rental income and reduced costs, have resulted in a notable rise in NOI by $66,240. At a 6.5% cap rate, this increase represents a surge in the property’s value by $1,019,077. As a result, the current property value has risen by 39% compared to the purchase price just 9 months ago.

We have a few more units to get through before reaching our full market rent projection of $27,200. Originally, we projected this to take 24 months to achieve. Our debt for this property is fixed at 4% until 2027.

Royal Oakland

Royal Oakland continues to operate in “autopilot” mode. Our current rent roll is $29,050 with full occupancy. When we initially acquired the property in August 2020, the rent roll was $13,600. Over approximately 15 months, we accomplished a remarkable 213% increase. To achieve this, we invested $500,000 in renovating and completely transforming the property’s interiors.

During the refinance appraisal in February 2022, the property was valued at $4,150,000. Our all-in-all cost for the property is $1,800,000. This continues to be one of our favorites.

Hollyvillage

In November 2021, we acquired this property with a rent roll of $10,320 at full occupancy. Currently, we have maintained full occupancy and increased the rent roll to $14,185, with an additional monthly income of $95 in pet fees. Recently, we achieved a new peak market rent of $1,100 for one of our units (all 2 bedrooms), which is $105 higher than the previous high at this property. The additional income added to our NOI results in an increase in property value by $678,857 at a 7% cap rate. This is a 70% appreciation over our purchase price from the peak of the market in November of 2021.

Major Market News


Tides Equity Sells

The real estate investment firm Tides Equities has sold an apartment complex in the Inland Empire of Southern California for $45.5 million, which represents a 40% profit in less than three years since its purchase. The complex, called Casa Bella, has 182 units and is located in the city of Riverside. Tides Equities purchased the property for $32.5 million in 2020 and invested $1.7 million in renovations, which allowed for rent increases and occupancy improvements. Over the past three years, Tides Equity has experienced significant growth. According to the article the company typically acquires properties using floating debt, and it remains to be seen how it will adapt to recent changes in the debt market. Nonetheless, the sale of Casa Bella represents a significant success for the company. Link to the full article below.

Article:https://therealdeal.com/la/2023/04/19/tides-equities-flips-inland-empire-apartment-complex-for-40-profit/

Tips and Tricks

Tip- Capture Value Anyway Possible

It is crucial to constantly search for ways to enhance the value of a property. While larger-scale improvements like interior renovations are apparent, minor adjustments can also accumulate to significant value. For instance, pet fees may appear to generate only a few hundred dollars a month, but in the long run, they can contribute to a considerable profit. Sometimes, unconventional solutions are necessary. Consider the case of the Donovan Townhomes, where removing cable expenses resulted in a $90,000 increase in the property’s value. It’s crucial to think creatively and beyond the obvious big-ticket items like interior renovations.

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