We've Closed on this 5-Cabin Vacation Rental!

Flywheel Investor Newsletter, October 2021



We have some exciting news from inside the Flywheel - we successfully closed on our first commercial short-term rental investment property!

We now have a few months of operational experience under our belt with this new property type and would love to let you know what our experience has been to date.

We've Closed on the Hot Springs Log Cabins!

The Hot Springs Log Cabins is a single property consisting of five pet-friendly honeymoon cabins located in Hot Springs NC. Hot Springs is a small town deep in the Blue Ridge Mountains of western NC and directly on the Appalachian Trail. As such, it is an area known for its scenery and outdoor activities which make it well positioned for a post-COVID world.

Front porch of one of the five Hot Springs Log Cabins

We've spoken recently about our exploration of other asset classes beyond multifamily with both self-storage and STRs being the most promising. Our acquisition of the Hot Springs Log Cabins represents the first step of our asset-class expansion and we're excited by the value we're seeing already.

To give you a comparison, we purchased this property at around 13.5% cap rate - a number unheard of in any other type of real estate. Yes, there is an operational overhead with STR that doesn't exist with other asset classes, but we feel that's an opportunity for competitive differentiation and more than balanced by the strong returns.

Our plans to fully realize the property's potential include updating the cabin designs, adding wifi, redesigning the website, investing in additional distribution channels, professionalizing its management, and testing incremental price increases.

Yes! Let me know of future STR investments

With this early positive experience, we will be looking to expand our STR investment footprint and would love to know if you'd like to participate along side us. If so, please click on the button above and we'll be sure to let you know of future STR investment opportunities.

Have You Considered Startup Investing?

Beyond just exploring the multitude of commercial real estate investments, more generally what we do here at Flywheel is break down the barriers to alternative investments. Real estate private equity (the investments Flywheel offer) has traditionally been an asset class limited to ultra high net worth individuals. But it's not the only one.

Private equity partnerships can also provide access to startup and other early stage company investments. "Venture capital", "seed investing", and "angel investing" are all terms for passively investing into partnerships that then take equity positions in companies that are in the early stages of their lifespan. Just like with real estate partnerships, you as a limited partner provide capital and the general partners manage the deal flow, due diligence, and investment process.

You can invest in companies at many stages of their lifecycle, not just in the last stage with public market equities

These early stage investments are your classic high risk high reward type investments. Whereas real estate offers very low downside risk, startup investing can have high returns when it goes well but can also go to zero when it doesn't. Given this all or nothing return profile, most investors choose to invest in early stage companies as part of a fund which itself invests in several startups – a form of internal diversification to achieve a strong blended return.

What's the point of talking about this – is Flywheel Equity going to be offering an angel fund? Definitely not! But there's more to constructing a well diversified portfolio than adding real estate exposure. Just as it's important to diversify your overall portfolio with private equity real estate, so too is it important to diversify your public stock portfolio with early stage private stock offerings.

Expect to see some more information on this asset class in the coming months as I explore it for my own portfolio. Where are you in your portfolio construction - do you have any early stage exposure yet?

Portfolio Updates

COVID has been quite the challenge to the real estate market. Not just from an eviction moratorium perspective, but also from a severely compromised supply chain that has resulted in increased renovation costs and extended timelines. Even with these headwinds multifamily continues to be highly sought after due to extraordinary rent growths and a lack of any yield-producing alternatives.

I'm happy to say all multifamily properties within the Flywheel portfolio are exceeding their pro forma performance. So much so that we've started the process of soliciting broker opinions of value (i.e. estimates) for their sale. While our default mindset is always one of long-term ownership, we also have to be cognizant of our investors' preferences.

If we have an ability to return 20%+ IRRs while giving investors an opportunity to invest their gains in other investments well... we have to at least consider that option.

We will let you know as we make disposition decisions for our portfolio (or the rationale behind our decision to maintain ownership if we go that direction too).

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