Merging with WhiteHaven
January 25, 2022
December has been a very active month for us. We’re excited about our latest property under contract, a 163-unit property in Peoria, AZ. It will
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We have answers to common concerns our investors ask before committing.
Apartments operate more like a business and they benefit from economies of scale (full-time staff members, access to quality contractors, discount on materials, reduced impact of vacancy). There’s also increased financial security at scale. Having 5 vacant units within a 100-unit complex is still profitable compared to having a single vacancy in a triplex.
The opportunity for force appreciation is also unique to multifamily properties compared to single family homes. We can drive the valuation of the business (apartment) up by renovating units and increasing its revenue, because businesses are sold and purchased based on their ability to produce income.
Read more on our article “3 Reasons to Invest in Apartments“.
WhiteHaven Capital is our sister company and we partner exclusively with them on all of our deals. Ben and Sam, the owners of WhiteHaven, live in Phoenix, AZ and work full time managing the assets and the construction team. First Chair Capital (Jeff and Tommy) support investor relationships, technology implementation, and acquisitions due diligence. Together with a few other partners, we collectively make up the general partnership team on any given deal.
We’ve acquired 6 apartments over the past 5 years, and have exited 4 of them—producing large profits for our investors.
The second table highlights the revenue growth we’ve been able to achieve through our value-add business plan.
Browse our portfolio page for details on each property.
The team underwrites our deals conservatively using metrics like 9% vacancy while Phoenix’s historic vacancy is 7.5%. Even if our stabilized apartment fell to 75% occupancy we would still be cash flow positive. Additionally we ran our underwriting through the worst, and highly unlikely, scenario accounting for an additional .5% higher cap rate at the time of sale, rents falling short by $100/unit, and a .5% bump to refinance rate. The result of all of these factors combined still delivers a projected 8-13% internal rate of return over a 10 year period to investors.
While our goal is to exit properties as soon as possible to reduce the risk of investment, we plan for a 10 year hold to weather any future economic uncertainties.
The general partners spend months sourcing a single deal, inspecting the property, combing through the leases, lining up financing, and fundraising. We front the cost of all these things, as well as the non-refundable earnest money deposit, which is substantial on transactions of these sizes.
Our fees include acquisition fee, finance fee, and asset management fee.
Any profits in excess of the 10% cumulative preferred return are split 70/30, with 30% going to the general partners. This is called the promote.
All of the fees and the promote are included in the underwriting, accounted for in the return projections, and are addressed in detail in our legal documentation.
The general partners also invest our personal funds into each deal, thereby making money as limited partners as well.
As a limited partner you are taking on a passive role in this deal. Most of your work is happening now through your personal due diligence and your decision to invest based on your time horizon, cash availability, and alignment with our group.
The general partners will make the majority of decisions related to the business and they have a fiduciary responsibility to all investors. The full details of voting rights for limited partners are described in our legal documentation.
Minimum Requirements
The SEC regulations require us to raise money from investors that we have an existing relationship with or who are accredited. Accredited investors are those who have a net worth of at least $1M (excluding their primary residence) or have earned $200K+ ($300K if married) annually in the previous two years, and expect to continue earning as much. Beyond these requirements, the minimum investment for our deals is typically $100K.
We create a new LLC for every apartment we purchase, and passive investors (limited partners) own a percentage of that LLC. This provides a layer of legal protection for our investors, while also enabling them to benefit from passive losses that flow through the LLC.
There’s a 10% preferred return for our limited partners, and anything beyond that threshold is split 70/30—limited partners/general partners. All available cash flow is distributed quarterly, and investors receive a K1 tax form annually.
Transactions of this size ($50M+) means there’s opportunity for depreciation. This results in paper losses that’s passed on to our investors that they can then use to their benefit.
You will receive an annual K-1 tax form showing your earnings or losses. Since everyone’s situation is different we encourage you to speak to a tax professional as we’re not qualified to speak on your specific situation.
Email us at [email protected] and we’ll set up an initial chat. It’ll be an opportunity for us to get to know you and more importantly, for you to pick our brains on everything real estate. We’ll send you details of our next investment opportunity if we both feel this is the right strategy for you.
From there, you’ll review and sign all the legal SEC documents—that’s right, these investments are filed with the Security and Exchange Commission.
Lastly, you’ll wire your investment ($100K is our typical minimum) to the new business entity that we’ll form and become an official limited partner for the new business. You’ll receive monthly updates, quarterly distributions (if there’s any available cash flow), and get an annual K1 tax form that will report your earnings or losses in proportion to your ownership percentage.
Throughout the process, we’ll check in to make sure you feel confident and comfortable with your decision.
It’s okay to be on the fence about this type of investment.
This approach is clearly our personal preference and you should consider your preferred style of investing. Some investors enjoy the hands-on aspect of flipping a house while others like managing their own rental properties. Whatever your style may be, we’re here to have an honest discussion and help you consider how this investment may or may not fit into your time horizon.
Please send a message to [email protected] and we can answer all of your questions.
Here’s what we’ve been up to in the last 12 months.
December has been a very active month for us. We’re excited about our latest property under contract, a 163-unit property in Peoria, AZ. It will
November has been a very productive month for us. We are under contract for a 163-unit property in Peoria, AZ and it is scheduled to
September was a solid month for us. We bought two new properties this year and we have been quickly renovating those properties. It is still
August was a very eventful month for us. We officially closed the sale of two properties for a 90% and 100% return on investment. Since the other properties in
This month we’ll discuss one of the ways we align with our investors and put them first via our preferred return and waterfall structure. What
Last month was a busy month for us! We are closing on our latest purchase, a 136-unit apartment in Phoenix called Strayhorse Apartments. We received