Thank you for your interest in Flywheel Equity. Whether you are new to multifamily real estate or an experienced investor, I'm sure you'll enjoy the following look behind the curtains. It has been an eventful month, to say the least. This month's issue includes details on Flywheel's newest acquisition, an update on existing investments, and how COVID-19 has changed our underwriting process.
If you're interested in learning more about any of the deals or topics covered in this newsletter, I invite you to give me a call here.
In the Flywheel
New 12-unit Under Contract!
I'm happy to announce that Flywheel Equity as a new property under contract. Vance Street Apartments is 12-unit property located in the rapidly growing small town of Mebane, North Carolina.
Mebane is conveniently located on the main highway midway between Raleigh-Durham and the Triad (Greensboro, Winston-Salem) and has seen extraordinary growth over the last decade. This area of NC is one that I've spent a lot of time researching and I'm happy to have a property here.
As for the property itself, there are several reasons I'm high on it:
- These are all single floor 2 bed, 1 bath units, which is a very flexible and rentable floorplan.
- The units were heavily renovated in 2015, including new metal roofs, HVAC systems, in-unit laundries, etc...
- The property is well taken care of with tenants planting gardens and generally keeping the are well kept.
- The rents are well below market and we think can be raised $150/mo+ with minimal investment.
- Even with very conservative underwriting due to the impact of COVID, this pencils out to a 18%+ IRR over a 5-7 year hold.
This investment is already fully funded, but please let me know if you'd be interested in opportunities like this in the future by replying to this email (or emailing me directly at email@example.com).
New Investment: Park at Blanding 117-unit in Jacksonville, FL
We're happy to announce the addition of the Park at Blanding in Jacksonville, FL to our limited partner investment portfolio.
Flywheel Equity has taken an equity position as a limited partner in this low-leverage deal located in the economically strong MSA of Jacksonville, FL. It caught our eye because it's a value-add opportunity with over $150/mo/unit in projected rental upside in a sub-market boasting the 2nd best school district in the area. Additionally, due to local zoning restrictions, no new development is allowed in the area which further increases the rental demand for the property.
Our existing 16-unit property in Fayetteville, NC is performing well amidst the COVID recession. We continue to be impressed with the rent collection and maintain high occupancies. Although things are running smoothly so far, however, we remain conservative in our capital allocation and are continuing to build reserves. We are in contact with our property management team and are analyzing the property's performance on a weekly basis.
COVID-19 Underwriting Adjustments
This COVID-19 world is having a unique economic impact, unlike your "standard" recession (does such a thing exist?) and I wanted to let you know what adjustments I've made to how I analyze properties.
First, I'm projecting rent growth to be flat for 2020 *and* 2021. We have been fortunate with the consistent, year-over-year rent increases in the hot Carolina markets for the last decade. The current data says that this trend may go on a temporary hiatus as economic uncertainty hits current and potential tenants. In a similar vain, I am doubling projected vacancies to 15-20% (whereas previously my standard was 10% total).
On the financing side, I'm requiring Flywheel properties to have enough reserves to cover one year of mortgage payments. While this may slightly lower returns being put out by operators across the board, it ensures we remain in a strong financial position and increases our business plan flexibility.
Finally, I've increased the exit cap rate assumptions to 20bps of expansion for every year of holding a property (up slightly from my previous conservative default of 15bps/year). This will reduce the projected sale price of the asset on exit, making sure every deal has a wide margin of error and isn't relying on continued appreciation to hit expected returns.
All of the factors that make the Carolina market great for multifamily investing are still in play. The Raleigh-Durham market has a particularly strong showing with its status as a national tech hub. We here at Flywheel, are confident that our market is primed for a strong recovery and continued future growth.
On the Socials
Social media is a great way for us to share relevant articles, real estate lessons learned, and exciting Flywheel Equity updates. Here's a sample of some of the recent posts.