The good, the bad, and the ugly

Of an 80-unit value-add property in Louisville that I’m a passive investor in.

I repeat: I have NO CONTROL over this investment/syndication because I’m a Limited Partner (LP) in this particular deal.

A THREAD

#TheWeekendJump

The good:

-79/80 units are occupied. That’s 98.75% occupancy. We’ll take it. Although it could be seen that our rent is too low (supply/demand).

But I’m not complaining in times like these.

-Had 2 move-outs in Q2 and 1 move in, hence the 1 vacant unit. We had 100% occupancy Q1

The bad:

-Investment start date: October 2018
-Annualized ROI (for LPs) since inception: 0.87% (YIKES! & dropping)
-Distributions during the 1st year are usually slim in these types of value add projects, but distributions are lower than expected & they're still suspended

-Collections are down with a majority of the tenants working in the service field

The ugly:

-This project has expended all of its $1.05M budget for improvements. Among many CapX projects that have been completed, only 60 of the 80 units have been renovated. The plan was to renovate all 80.

Factors that were not planned for and have been challenges

Challenges:

-The property has had 5+ water main breaks
-new additional leaks created moisture in the crawl space on one of the buildings. That compromised the integrity of the subfloor and floor joists. Affected 4 units and had to move residents to a hotel.

-units have needed $2k more per unit than budgeted. Unit budgets escalated due to subfloor issues, mold behind shower surrounds, defective plumbing, and other items that were not foreseen.

Challenges continued:

-replaced commercial water heater for $25k
-recent leak project cost ~$30k alone. Working with insurance on a claim
-insurance premium increased by $19k

LESSONS HERE:

-the syndicators didn't factor in a big enough contingency fund/raise enough $ for contingencies
-they did a poor job assessing the scope of work for renovation
-I'm not blaming them. I made the investment myself. That's on me.

Next Steps:

-asking bank for additional improvement funds
-The GPs have extended the cash needed, which has been $38,000+
-still have a low investment basis at $41k per unit
-selling at $50k per unit still realistic

2 years into this project, and yes, there have been challenges

But it's been great watching this deal from afar as a passive investor.

This was my first tip-toe into the large multifamily space as a passive investor and has helped me be better on the GP side in Phoenix now.

Since investing in this deal, I've gone on and invested passively in another deal (not with this operator) + become a General Partner on a deal after that.

I now work with completely different partners than the one running this deal, having learned a lot from this experience.

If you want to learn more about what my partners and I are doing in the value-add multifamily space in Phoenix, connect with me here:

https://www.jumpinrealestate.com/invest.html 

Here's an example of the work we're doing on the interior of units.

Bringing our properties up from C class the just under A.

Creating our own submarket...which is Class-A amenities, but at a slightly more affordable price point for tenants. https://twitter.com/JumpInRE/status/1281212004452184064

My favorite saying:

There’s no such thing as losing. You either WIN or you LEARN.

And the first step to success is

to take action.

#TheWeekendJump #JumpIn