Our typical business model is holding an apartment complex for 5 years and implementing our value add strategy. We look for apartment complexes of 100+ units that have on-site staff in a growing, diverse market. Since the valuation of apartment complexes is based on the Net Operating Income (NOI is Income minus operating expenses), we aim to increase the NOI to get a higher valuation of the property.
When we underwrite the deal, we underwrite for a 5 year hold and we calculate a total investor return. We aim for a 80% total investor return or higher. That means, if one of our investors invests $100,000 into our deal, we want to return 80% ($80,000) plus their initial investment of $100,000.
We try to target a cash flow of 6%+ average (of the 5 year hold) and send out quarterly distributions to our investors. This equates to an IRR, or Internal Rate of Return, of about 15% or higher. Of course, if we sell sooner than the 5 years we underwrite, the IRR would be higher. If the average cash flow over 5 years is 6%, the remaining return on investment would be at the sale of the property.
Let’s look at an example: If you were to invest $100,000 and the overall return is 95% and the average cash flow is 6%, you would receive $6,000 each year, or $1,500 each quarter. After 5 years, you would have $30,000 (or 30% return of your initial investment). When we sell the property, we project you would receive the remaining amount plus your initial investment. That means the remaining amount 65% ($65,000) plus the initial investment of $100,000 would be returned at the time of the sale. Over the 5 year hold, you would receive $30,000 in cash flow, $65,000 at the time of sale, and the $100,000 initial investment would be returned at the sale.
Of course, we try to implement our plan in less than 5 years. This means we would sell sooner than the 5 year plan. This does not mean the overall returns would be less. It means the IRR would be higher and we have executed our plan sooner than anticipated.
To learn more about our business model, please visit our Knowledge Center. To find out how you can passively invest, please schedule a time with us or contact us, and we will reach out to you.