Call Us Now!
(608) 622-7044

Here's the detailed breakdown of our most recent closing - a 42-unit apartment building which we bought just under 3 years ago (July 2019) and then sold for a $1.1M+ profit! (closed May 2022). A big thank you goes to my business partner Nate Barger and of course to our investors.

Acquisition: Why & How We Bought This (Hint: It Was Cheap & We Used OPM)

This 42-unit apartment complex is located in the Bond Hill area of Cincinnati. At first, I didn't want to buy another apartment in the area (it's a C area) but the broker persuaded me that there was so much potential in this property as the rents were $300/month/unit below market.

We purchased the property for $1,470,000. It needed about $362,000 in renovation and other soft costs. The rents were low, averaging only $625/month and we knew, we could increase the rents to $925/month.

We utilized $400,000 from private investors and we set it up such that we gave them a 6% pref (preferred return - meaning, they get paid first a set amount or percentage of their investment) AND a 30% profit share. That means, on top of 6%, they get 30% share of the cashflow in excess of the pref as well as 30% of the profit from the re-sale.

My partner Nate Barger and I then qualified for the mortgage at 80% LTC (Loan to Cost).

Renovation & Management Improvements

We actually spent $260,000 instead because we decided to renovate about 50% of the units. We put new blacktop on the parking lot, replaced some of the roofs, improved the landscaping and we took care of deferred maintenance items.

We also instituted energy and water consumption audits and we put in new fixtures, high efficiency toilets, and LED lights to reduce the operating costs. We also put in some automation and management controls to ensure the operating costs become more efficient.

Re-sale & Return to Investors

After demonstrating that we could increase the rents substantially across 50% of the units we decided to sell the property. Even without renovating all the units, over the 33.5 months we owned this property, we netted about $233,000+ in cashflow. We gave our investors 6% pref or $67,000 (33.5 months x $400K x 6%/12 months). We then gave our passive investors 30% share of the excess cashflow or about $50,000.

We got the price we wanted - $3,100,000 and in exchange, we gave the seller a credit for the remaining renovation needed plus buyer's credit for a total of $237,500 in credits. We also gave him about $66,000+ in rent, security deposit and tax prorations. He did a 1031 exchange so he got his equity from selling one of his properties but by giving him generous credits and prorations, he didn't need to bring much cash to the closing table.

Bottomline, after paying all the closing costs, prorations, buyer's credit, we got a check for $1,457,736. From this amount, we paid off our passive investors' capital of $400,000, giving us a net profit at re-sale of $1,057,736. Our passive investors then got 30% of that and when you add the pref and profit share of the cashflow, they get a total return of $434,000.

That means they MORE than DOUBLED their money in 2.5 years (equity multiple of 2.09x to be exact). Not a bad return for being TOTALLY PASSIVE!

If you want to be notified of our next deal, feel free to sign up here - https://www.scalemyportfolio.com/nassau-investments-new-investment-opportunity-in-sarasota-fl

Many experts are saying that, as I write this - March 15, 2021, that we are in a housing bubble. Inventory is at an all-time low and and on top of that, mortgage interest rates are low which results in high demand for housing. The two combined - lack of inventory and high demand due to low interest rates - results in house prices being an all-time high.

House Prices Are Too High?

The following graph shows this to be true:

With 1990 as the basis - i.e., index 100, this graph shows US home prices back in 2006 peaked at 240 index or 2.4 times home prices of 1990. It has now reached all-time high of 306 or basically 3 times home prices of 1990.

However, we need to take into account inflation. Yup - that nasty tendency of the US dollar to lose value over time. Below is the inflation-adjusted graph:

House Prices Are NOT That High (With Inflation)

As can be seen from the above graph, as of beginning of 2021, home prices is around 1.6 times 1990 home prices, when adjusted for inflation.

This is the reason why it is NOT good to buy a house cash or without getting a mortgage. In real, inflation adjusted dollars, you only make a 60% return from appreciation over a 30-year period from 1990 to 2020! The stock market has a higher return than that. 

And talking about buying a house with a mortgage, the reality is - most people buy houses with a mortgage. The price of the house is secondary in importance to whether one can afford the monthly mortgage payments.

A "Shocking" Discovery

Back in 1990, the 30-year fixed interest rate is 9.89% and in 2021, the mortgage interest rate is less than 3%. In other words, even though home prices today are more expensive compared to the same house 30 years ago, the interest rates one pays is way lower. So what's the impact of this on mortgage payments? Assuming 5% downpayment and 80% of the house payment being on mortgage principal and interest (and 20% for taxes and insurance), below is a graph that was quite shocking.

In other words, the average house payment in the US today is about the same (if not slightly lower) than 30 years ago! That's right - even with higher home prices today, the fact that interest rates have been cut by almost 2/3rds result in no increase in mortgage payments!

On hindsight, the graph above, although "shocking" makes a LOT of sense. Ultimately, the price of homes will go up only up to a certain limit and that limit is affordability. Can the median household income afford the median priced home...not in terms of price but in terms of the house payment? If not, the tendency of home prices is to go down to become more affordable.

Real wages when adjusted for inflation (as the graph below shows) has kept up with inflation from 1990 onwards (although it trended downwards from the 1970s up to 1995).

So are we in a housing bubble?

At the height of the housing bubble of 2006, the mortgage payment is 17% more than the mortgage payment back in 1990 after adjusting for inflation and even after the lower interest rate we had at that time compared to 1990. 

In other words, the average mortgage payment at that time exceeded what people could afford and grew way faster than inflation. It was due for a correction because clearly it was not sustainable. 

What about now?

Right now, as of March 15, 2021, the US median household income can still afford the median mortgage payment so the quick answer to the question is NO we're not in a housing bubble as a country. Of course this is different in different areas of the country. San Francisco is 25% more expensive in terms of house payments today vs 30 years ago - although one has to factor in the fact that the technology is a much bigger employer in San Francisco today than in 1990. We need to look into the growth of wages adjusted for inflation in San Francisco to see if the 25% growth in house payment is still affordable. If it is,  then San Francisco is not in a housing bubble as well.

But House Prices Could Still Drop

There are several factors that could result, not necessarily in a housing market crash but in reduction in home prices. Here are some of them:

1. What's the effect of lifting the foreclosure moratorium on home prices? Most likely, there will be a jump in foreclosures but will the increase be significant enough to result in lower home prices?

2. What's the effect of the recent $1.9 Trillion stimulus of President Biden on inflation? If the CPI (Consumer Price Index) rises faster than wages, then affordability will drop which could lead to home price declines.

On the flip side, the stimulus should help some home owners who are behind on their mortgage to catch up and avoid foreclosure altogether.

3. What about interest rates? An increase in interest rates will hurt home prices as monthly mortgage payments will increase.

4. The most important factor is the unemployment rate. We don't quite "feel" 100% of the effects of the higher unemployment due to the Covid lockdown yet because of the stimulus money. But 6-12 months after it runs out, we will likely see downward pressure on home prices.

In conclusion, we are not in a housing bubble similar to 2006-07 since home prices, more specifically, home mortgage payment is still affordable. However, we might see home prices decrease slightly in the next 6-12 months.

What's your opinion on this? Do you think home prices will decrease or increase in the next 6-12 months?

Thanks to John Wake's analysis on home prices and mortgage payments in his website - RealEstateDecoded.com.

Because of Covid 19, the world was in lockdown. Travel was virtually stopped and so hotels all across the world suffered. With low to zero occupancy, hotels were forced to shut down. For a few months, I even had to shut down my hotel (pictured above). Good thing I have plenty of cash reserves set aside for each of my properties and I could keep paying the mortgage even with no income coming in.

But, after getting some "insider" information and based on what I learned during the Great Recession of 2008-09 (I not only survived it - I actually made a ton of money during that period), I've decided that NOW IS THE PERFECT TIME TO BUY HOTELS.

In this blog post, I will reveal my rationale for buying hotels NOW and will show you, both the risks and the rewards for doing so.

The PROBLEMS with HOTELS - Effect of Covid 19

As I write this post, there seems to be a second wave of Covid 19 cases. Travel has been allowed, although limited and as a result occupancy is still low. 

According to a report by the AHLA (American Hotel & Lodging Association) hotels in the US are losing $400 million in room revenue per DAY!

Low occupancy (or zero) means negative cashflow. Negative cashflow means mortgage defaults for smaller hotel operators who are not well capitalized (or do not have enough cash reserves). And defaults will eventually lead to foreclosures.

"But with Great Problems Come Great Opportunities!"

If Spiderman did not say that...I just did. All throughout history, the ones who can turn problems into profit come out ahead and create massive wealth for them and their investors. Blackstone came out of nowhere because they raised massive amounts of cash to buy tens of thousands of foreclosures back in 2009. 

Personally, because of the Great Recession of 2008-2009, I became financially free. When the real estate market was still falling, I went on a buying spree and the cashflow from those properties paid for all my expenses.

I heard the expression "Do not catch a falling knife!" Well, in 2008-2009, the "knife" or the real estate market was falling. Good thing I did not listen to that advice.

With hotels, the knife is falling right now. And guess what...NOW is the time to SEIZE THE OPPORTUNITY to buy premium assets at MASSIVE discounts. MASSIVE discounts especially from premium assets like well-located hotels with premium brands (or flags), means massive cashflow and massive ROI.

Moreover, with banks not lending money for hotels right now, we can get hotels, not just at a discount but we can get them "light" - meaning with not a lot of cash via owner financing or joint ventures.

For example, I am in negotiations right now to get majority ownership (70-75%) in a renovated hotel in Lexington KY (that is worth $10M when it's stabilized) for a mere $500,000 in cash. Before Covid-19, I had to shell out $3M in downpayment to qualify for bank financing to get that hotel.

BUT What About the CASH BURN????

Before I answer that, let me reveal to you the "insider" information I mentioned at the start of this blog post. One of the people I know works for the health industry and she told me the Covid-19 vaccine will come out. It's already in Phase 3 trial and will likely be available to the public anywhere from 6-12 months. 

In other words, the cash burn will not be forever. Once the vaccine comes out, people will no longer be afraid to travel and more travel means higher hotel occupancy. Of course, hotels will not go back to their pre-Covid 19 occupancy and RevPAR immediately (it might take 3 to 5 years).

But again, now is the time to get these premium assets so we can take advantage of the great uptick in cashflow and price in the next 3 to 5 years.

So here's the answer to the cash burn.

My strategy is to focus on hotels that already have or can be converted partially or fully into Extended Stay Model or LTR (Long term rentals). 

The LTR will produce some revenue to help offset the negative cashflow.

Of course, when we acquire a hotel, we calculate the worst case scenario (zero hotel occupancy) and have enough cash infused into the project to sustain that for a period of at least 6 months.

Lastly, as I write this blog post, we can also offset the cash burn with the PPP & EIDL money from the government.

So, What Now?

If you want to become part of what will be a massive creation of wealth as we acquire premium assets like hotels at massive discounts, you will be glad that I am putting up a FUND to take advantage of this.

This is open right now to accredited investors ONLY.

* Investing Involves Risk, Including Loss Of Principal. Past Performance Does Not Guarantee Or Indicate Future Results. Any Historical Returns, Expected Returns, Or Probability Projections May Not Reflect Actual Future Performance. While The Data We Use From Third Parties Is Believed To Be Reliable, We Cannot Ensure The Accuracy Or Completeness Of Data Provided By Investors Or Other Third Parties. Neither Eden Capital Nor Any Of Its Affiliates Provide Tax Advice And Do Not Represent In Any Manner That The Outcomes Described Herein Will Result In Any Particular Tax Consequence. Prospective Investors Should Consult With A Tax Or Legal Adviser Before Making Any Investment Decision.
2023 All Rights Reserved | Eden Capital | Designed by KC Web Designz
chevron-down linkedin facebook pinterest youtube rss twitter instagram facebook-blank rss-blank linkedin-blank pinterest youtube twitter instagram