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 enormous demand and had $25M of commitments on a $15.5M project.
We are also in escrow to sell our 4th apartment complex after less than two years of ownership. It will produce a 100% return on investment, more than 50% per year.
Haven on the Rail!
We are under contract to sell Haven on the Rail. The business plan was to renovate all 94 units, update the exterior and community amenities, and sell the property within 3-5 years. Before we completed the full renovation scope, we received a very strong offer we couldn’t resist. This will be our fourth exit.
Name: Haven on the Rail (formerly known as Suncrest Apartments)
Size: 94 units
Date Purchased: November 2019
Projected Investor IRR: 15%
Actual Investor IRR: ~50%
Investor Multiple: ~2.0x (Example: $100k invested will return $200k)
Similar to all of our properties, this was a heavy value-add. We were also in the of building a new office and gym. See below for more details of the renovation scope.
Renovation Scope – Haven on the Rail
Haven on the Rail had a renovation budget of $3M. Like all of our projects, our plan was to create a product that did not exist in that submarket yet. We wanted to offer Class-A finishes in a Class-C 1980’s building.
As they say in real estate, “Location, Location, Location”. This property is located in a very up-and-coming neighborhood, with lots of new buildings and development surrounding the area. The city spent millions to renovate the park across the street. The property is less than 0.5 miles from the light rail, which goes to ASU and the Phoenix Airport. It is also close to Main Street, where new and hip restaurants and bars are located.
To attract quality tenants that wanted to pay more for a nicer apartment, we renovated both the exterior, interior, and community areas. After each renovated unit, we increased the income for the property, which increased the value.
For the exterior and community amenities, we ordered new signage for the rebranding and painted the building to a modern look. The pool decking was expanded and we purchased new furniture for the pool area. The bbq grills throughout the property were replaced. Sunscreens were installed to improve the tenant’s quality of life and make the units more energy-efficient.
We were in the process of building a brand new office and gym from the ground up. This development of the office and gym would give the property a modern look. This would also significantly improve the flow of the property. The new office and gym would be located in front of the renovated park, which is the nicest side of the property. This would have been great for marketing and directing additional foot traffic towards the office.
For the interior renovations, we always use Class-A finishes and are many steps above the competition in the surrounding area. We installed new shaker cabinets instead of repainting, we had granite countertops instead of laminate, and stainless steel appliances rather than white or black. New light and plumbing fixtures were installed, and the flooring was updated in every unit. An in-unit washer and dryer were installed in several units as well.
Summary
Our business plan has been to spend more on renovations, provide housing that people are proud of, and significantly increase the net operating income. While others are cutting back on their renovation costs, we’re spending more to create the nicest product. In good times, people are happy to spend more to have a nice place to live. In tough times, we can decrease our rents if needed. If tenants are price-sensitive, they will choose the nicest property within their budget.
We are very selective when it comes to buying properties and it can take a while to find properties that fit the heavy value-add business model. We are always looking for our next deal and are hopeful to buy another one in 2021.
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