This month, we’re doing a year in review and sharing some events from 2020. Despite these unprecedented times, we still had quite an eventful year and look forward to 2021.
Performance During COVID-19
With major shutdowns first occurring in March, there was a lot of uncertainty and questions from our investors. To help keep investors informed and provide full transparency, starting in mid-March we had a series of weekly performance updates across our portfolio.
While the pandemic financially affected many people, it was a pleasant surprise to see that our collections did not decrease nearly as much as we anticipated. We underwrite conservatively to account for major drops in income, and we have a very healthy reserve fund. We did not have to dip into the reserve fund and we were able to cash flow.
From what we noticed in our portfolio, the properties we owned the longest were affected the least. This is because we had more time to renovate the property, increase rents, and improve the quality of tenants. This was a validation of our theory that spending more on renovations will attract more qualified tenants.
While other operators might have stopped distributions or renovations, we continued with our planned renovation and distribution schedule. We also worked with tenants to minimize rent delinquency and evictions. Continuing to fully renovate interior units not only made our properties more appealing and profitable, but it also provided us with downside protection. If we had to lower our rents and there are two properties with identical rents, tenants would surely choose the property with nicer renovations. With our in-house construction team, our properties are unmatched in renovation quality within our investment class.
Sale of Haven at South Mountain
(80% ROI over 21 months)
Our business model for each property is to do a heavy value-add and increase rents by approximately $300/unit per month. While we do a complete facelift of the interior units, we also add common area amenities such as a new office, dog park, fitness center, playground, and upgrade the pool, bbq pits, and laundry rooms.
We completed all the exterior renovations and we were in the process of upgrading all the units. While doing so, we received a very strong offer to sell our property. This resulted in an 80% return over 21 months for our investors, approximately 40% per year.
Refinance of Canyon 35
With interest rates dropping to historical lows, we took advantage of the environment and refinanced earlier than our proposed business plan with Freddie Mac. This immediately increased our cash flow and will give us more flexibility moving forward.
In the meantime, we are continuing to renovate each unit, boosting the income to increase the property valuation. After 12 months of the refinance, we can sell the property for a minimal prepayment penalty or get a supplemental loan from Freddie Mac to return capital to investors.
New Acquisition, Haven on Thomas
(Currently known as Villa De La Paz)
We are acquiring a 104-unit property in Phoenix and will be rebranding it to Haven on Thomas. With the uncertainty of the current environment, this is a much more conservative deal with a 65% LTC loan and stronger cash flow than our previous deals.
We are oversubscribed and are accepting investors on our waitlist. The purchase is set to close on 2/2/2021.
Donations from First Chair Capital
When we founded our company, we committed to donating 1% of our gross income to various non-profit organizations. With so much happening in 2020, we donated over 2% to organizations that we aligned with. We’re sharing the organizations below in case you’d like to learn more about them.
- San Francisco & Marin Food Bank
- Los Angeles Regional Food Bank
- Saint Mary’s Food Bank – Phoenix, AZ
- Black Girls Code
- Know Your Rights Camp
- Innocence Project
With interest rates decreasing and uncertainty in the stock market, this has created even more competition in the multifamily space. We made offers throughout 2020 and got one property under contract. To stay conservative and limit potential downsides, we continue to look for true value-add properties in the Phoenix market. We are planning to purchase more properties in 2021.
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Next month, we’ll highlight some of the tax benefits of investing in real estate through syndications.