21 George Real Estate Investment Co closed on the subject property in July 2013. It was a run down five-unit property in a B neighborhood within walking distance to the cities downtown. The neighborhoods access to highways, jobs, restaurants, schools, and retail centers made the under-performing, poorly managed property a great reposition opportunity.
The subject property was purchased for $230,000, well below market value. 21 George Real Estate Investment Co brought in two investors to raise $57,500 for the down payment, plus another $150,000 for closing costs and capital improvements. At this point investors were in for $207,500. We also brought in a professional management team, Hinch-Crowley Realty Associates, LLC. with extensive knowledge of the market and experience with repositions.
Using the money raised for capital improvements, extensive repairs were done to he property to bring it up to par with the B neighborhood. Improvements included renovating all five units, new windows, roof and siding, adding a laundry hook up, converting master utilities to tenant paid utilities, tree removal to add parking, as well as many other less significant repairs.
Once all of the renovations were complete, Hinch-Crowley Realty Associates earned their keep by leasing up all five units in under a month while also getting rents above the pro forma. After a couple of months with the property 100% occupied, we were able to show the bank how the property will operate under 21 George’s management and get the property reappraised for refinancing. The new appraisal came in at $380,00 allowing us to take out approximately $90,000 and return to our investors. The Investors are now in for $117,500.
The property was stabilized and the reappraisal was completed by June, 2014. The following month we started giving our investors a monthly distribution. The next five-month period, from July 2014 through November 2014, the property cash flowed $8,970 to our investors. Prorating $8,970 to a twelve month return gives us an annual cash flow of $21,528 to our investors in this deal, which translates to a 18.3% cash on cash return while still holding their equity stake in the repositioned property.
Although repositions often require the most risk in a real estate investment, when done correctly, the returns they provide are often worth it. At 21 George Real Estate Investment Co., we have successfully completes a few other repositions similar to this one, while also investing in momentum play properties as well.
On Deck: Case Study: Calculating the ROI
***Disclaimer: This is not a solicitation this property is not open for any investors. The content and information contained in the case study is proprietary to the investors and shared our company for educational purposes only. Financial information is provided to show how the company managed this one investment property and does not reflect general performance of any other properties we have under management.