JOBS Act…Plan for it

For those of you who haven’t been following the JOBS Act, it is a bill that will make it easier for startups and small businesses to raise funds, especially through online crowdfunding, is the practice of funding a project or venture by raising many small amounts of money from a large number of people, typically via the Internet.

 

The JOBS act was designed to help small businesses by:

 

1. Removing general solicitation and advertising restrictions for certain private offerings

 

  • Rule 506 – If all purchasers are accredited investors
  • Rule 144A – If issuer reasonably believed all purchasers are qualified institutional buyers

2. Creating a new $1M crowdfunding exemption, allowing non-accredited investors to participate in the funding rounds

  • Up to $1M of securities in a 12-month period
  • Investor’s net worth <$100k they can purchase greater of $2k or 5% of annual income or net worth
  • Investor’s net worth $100k+ they can purchase 10% of annual income or net worth up to $100k

Complete article

The SEC will have a 270 days to implement additional regulations from signing of the bill.

If you are a real estate investor who may be looking to raise private capital through this vehicle you may want to start planning in the meantime.

Planning is the foundation to your success, Execution is the material that creates the business. Execution without planning is like wanting to drive to Fargo without a map. You may end up getting there but a little planning could have saved you a lot of time.

  • Check out my previous blog post where I lay out business planning and goal setting:

http://gabhartinvestments.com/article/in-the-office-today-working-on-my-2010-real-estate-business-plan/

  • Get all the documents in place. Including your business plan, incorporation documents , financial analysis & forecasts and a full executive team bio.
  • Do market research. Get all the facts in place in order to have a strong argument as to why people should fund your project.
  • Start putting together a list of contacts and potential investors.
  • The concept of crowd funding involves work from the user seeking funds as they need to leverage their networks and ask their networks to lend a hand. We found that the initial 30-40% of activity actually comes from the users’ network.
  • Make a video
  • Start to craft your pitch in the best possible way. If someone asks what you do can you explain it in 30 seconds or less? Do you know what your most common questions are and the answers to those questions?
  • Start building your social network presence. Remember crowd sourcing is based on smaller amounts of money from multiple people. Start building your network and credibility

Time will tell exactly how much impact the JOBS Act will have on the job market and raising money for Real Estate

Some reasons it may not make sense:

IF the SEC:

  • Makes it to costly to set up
  • Makes it to complicated to create
  • Has to be sold through securities brokers

OR

  • It may be to cumbersome to have a lot of little investors on deals.
  • More red tape and reporting requirements

I am not sure yet whether this is a good thing or not. It really depends on the SEC final terms which I will report on when the grace period is over.

 

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Funds expand with new Investment Manager

My name is Nick Walsh and I’ve joined Curtis’ team as an Investment Manager to build momentum in this exciting and lucrative residential real estate market. Curtis and I met this past October at a University of San Diego real estate conference. After talking for a while, it was apparent that we both shared an interest in the single family and multifamily business. We met for coffee recently and realized that there was synergy among our talents and personalities that could help seize opportunities and expand his business.

As Investment Manager, I am responsible for the overall management of fund activities. Curtis has done a great job building a profitable system for flipping houses, and I’m here to help him repeat that same success on a larger scale. I will be instrumental in forming and maintaining investor and lender partnerships as Curtis incorporates independent funds into the capital structure. I will be managing investor capital accounts, including contribution and distribution timing and amounts. As the business increases in volume and complexity, this is vital to ensure that returns are maximized and accurate. I will be preparing investor presentations and disclosures so that the status of every project is transparent and easily accessible for all stakeholders. In addition to my investor relations role, I will also be participating in individual property acquisitions through property selection and management of the escrow process. Once the property is acquired into the fund, I will assist with strategic planning and budgeting for expenses and cash flow. During each project, I will be interfacing with accounting to track actual performance to budget. In each role, I am focused on contributing the best information and ideas so the team can make decisions to maximize profits.  

My professional resume is posted here on our website at www.gabhartinvestments.com/about/key-people/. If you are looking for a more personal touch, here I am in a nut shell. I grew up in Boise, Idaho in a family consumed by the inevitable cycles of the real estate industry. I’ve seen the best and the worst of times (dinner table had either filet mignon or spam sandwiches). I left Idaho for the Central California Coast lifestyle and was educated at Cal Poly in Finance and Accounting along with the amazing social curriculum there. I figured out that I was a “numbers guy” and jumped on the KPMG bandwagon in San Francisco after college. However, I requested to be placed on several real estate clients in an effort to combine my two passions, maximize my talent, and keep my sanity. It didn’t take long for the real estate boom in 2005 to coerce me back to Boise to develop residential subdivisions for the family business. I was bringing big city, big company experience back to dominate the hometown scene. We had a great run, but the market collapsed and my journey back to California began. The Masters in Real Estate program at USD caught my attention and I remembered that San Diego was the place to be if you are into beautiful weather, sandy beaches, and a vibrant nightlife. Now I begin the next chapter, and I look forward to the challenge.

If you have any interest in meeting me, drop me a line and we’ll set something up for coffee, lunch, or happy hour. Take care until then.

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What a long strange trip it’s been….

As the saying goes “So much to say so little time” seems so true and I apologize for not updating the blog more often for the 2 of you (my daughter and some random dude from Romania I think) who actually visit this thing.

Where do I start? The last real post was in the middle of May I think when I posted my 30 day challenge. At that time I decided to see if it were true that there were no more good deals to buy (I was a little worried this may be true).

The challenge was to buy 2 San Diego properties in the month of May (which I decided to increase to 3 because as the cool people say “that’s how I roll”) and I am sure the two of you must be curious how this so called challenge turned out… Be patient I will get there shortly.

Back to the “so little time” in Real Estate. Where has my time gone??? I ask myself that at the end of every day,week,month & year but looking back I have been extra busy I think with these 3 things.

1) Real Estate Interns

I brought on two interns from San Diego State University who are going into there senior year and board members of the SDSU Real Estate Society. I bit off quite a lot bringing on two full time people and was concerned about the time it was going to take me but Anthony & Seth have been great.

They’re assignment for the summer is

  • To document everything they learn as they are doing it. They will do this by making or adding to instructions I already have on how and why I do what I do. This will be helpful to me next time I have interns and helpful to them by having to spend the time documenting these systems I use.
  • To keep a daily journal on what they are doing
  • To update the blog with what they are doing and their point’s of view. I feel this is benefit for everyone. The two people who read this blog, for them by having to really think about what they are doing and to be able to articulate it to someone reading the blog and really sound like they are in College and me by creating valuable content to people on what the view from someone really is like from someone immersing themselves into the business and to get additional information on what is working (and not) in the Real Estate business (at least related to my world). Seth posted his first blog last week and Anthony is due to post any day now so stay tuned on that front.
  • To end the summer with a set of goals and business plan to help guide them into the future. They are finding this difficult as all of us do but I believe if they can set a course for their futures now and a plan of action the dividends they will receive in the future will be incalculable.

Just like anything in life they will probably receive a benefit in direct proportion to the effort they put into this.

2) FINALLY!!!! I have all my legal entities and documents set up for our Real Estate syndication

Well it’s taken me about 6 months longer than I was hoping and expecting but I finally completed our private placement memorandum with the help of Jillian Ivey. In addition I was able to complete our business plan with the help and push from Seth and Anthony, in addition to some other people who just graduated from the USD MSRE (Masters in Real Estate) program. Having the interns here really kept me on track and focused (they may disagree with my use of the word focus but trust me I know myself).

We have decided to selectively take in investor partners to the company. The original idea started out raising a million dollars in equity which would be used as capital in buying distressed single family 1-4 in San Diego. We would use leverage and estimated anywhere from 15-24 properties could be purchased with the money.

When we have done this in the past with Apartment buildings it was fairly straight forward. I would put a deposit on a building and get it in escrow and if I decided I wanted partners we would put an offering together for the building and close on it.

With SFR REO’s it is much more challenging because of the time frames are much more compressed and it is logistically impossible to raise the capital in this manner, the money had to be available first.

It seemed like every time we thought we solved one problem another came up that had to be solved. This made the process take much longer than expected since I was also buying and rehabbing properties at the same time.

A benefit of proper planning is that many times it tells you what not to do. I think a trait of an entrepreneur is optimism right? Otherwise why the hell would you work for free in the hope of getting paid some day? So sometimes it is better to learn what you shouldn’t do which then guides you in the proper way it should be done or helps you decide it’s not worth doing before spending countless amounts of money and energy on a project.

I believe the structure  should be a solid foundation for growth. In summary we are using a Delaware Series LLC which the investors will be members of and GII the manager. Instead of raising 1 million at a time and having to try to place it immediately we decided on doing micro funds of $150,000 – $350,000 each. This allowed a lot more flexibility and less pressure in having to place all the money at one time.

The funds are set up so as soon as the $150,000  is in we start buying properties. Each fund ends up being from $150,000 – $350,000 each in which we will buy 2-6 properties using about 80% leverage to increase the return for everyone. As each property is sold the money that was invested into that property and any additional profits are distributed pro-rata according to the partnership agreement with the final distribution at the sale of the last property.

Once the money from the current fund is placed the next fund is mobilized. The attractiveness of this being that I can keep the flywheel moving. Real Estate is really a momentum business and nothing happens quickly.

Just like in brokerage or many sales jobs you have a pipeline of opportunities you create for yourself. The work you do today (sowing the seeds) you reap in the future. Real estate can have very long cycles and very sporadic cash flow.

A good analogy to getting your pipeline flowing is like moving a train. It takes a tremendous amount of energy to make it move but once it gets going it’s also hard to stop.

Buying properties are the same way. If this is your business you need to constantly be working looking for opportunities and you need to be able to take advantage of them when they come up. You do this by letting agents, owners etc. know that you are looking (sowing) and over time they start calling you (reaping) with these opportunities (9 out of 10 are not opportunities). As soon as you tell them you are not looking anymore they find someone else to work with and then you have to start all over again once you are ready to buy.

In the future when the time is right we can purchase other investment that are kept for the long term and apartment buildings again.

2) Buying San Diego Real Estate

Originally the 30 day challenge was 2 properties by the end of May. Well like many goals they don’t turn out exactly how you planned but it almost 100% of the time turns out better than if you had none.

We bought 3 properties with a 4th closing next week. I will post more information on these properties later but all is going well. 1 of the 3 went on the market and went into escrow right away. We are scheduled to close in about 40 days. Two more should be on the market by august 1st and the 4th one which is a much bigger rehab 60 days after (we have to deal with the city and take care of some violations from the last owner so that will probably delay us 30 days).

I plan on following up with a video post of how I found the properties I purchased. I attempted to spend about 15 days tracking my activities so I could report back to everyone

  • how many agents I had to call before I found something worth driving
  • how many properties I had to drive before I put in an offer
  • how many offers until I got a property under contract
  • how many properties did I have to get under contract before I purchased one.

By having these numbers you can set your goals and work backwards on the activities necessary to accomplish them.

Click Here are 3 of the 4 properties I am buying and how we underwrite and put them together for ourselves and investment partners when we have them.

I have finally gotten around to putting together some numbers from my last 6 properties into a website that I hope to post soon. I have gotten the numbers and some pictures together so far. The next step is to do a little summary with how I found the properties, what I did wrong, what I did right, etc. All this stuff always takes longer than I estimated (like almost everything else in life right?)

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Apartment Hunting

Apartment Hunting

You can’t plan opportunities but you need to jump at them when they present themselves.

I got a postcard in the mail from an agent out of the area selling a 50+ unit apartment building for what appeared to be a very attractive price.

As mentioned previously in the Blog I really had not been looking for apartment buildings because the returns generated by many of these buildings in San Diego have been disappointing. When Syndicating partnerships there has to be a great enough return to 1) pay the investors an attractive return 2) get compensated yourself based primarily on the performance of the deal.

So in an a typical multi-family deal here is a simple scenario of where the money is made.

  1. Cash flows from operations
  2. Appreciated value
  3. Loan pay down

Typically in San Diego most of the money has been made on the appreciation side with some cash flow during the operations. Right now the cash flows are better than they have been in quite awhile but when are  we really going to see any appreciation? The exception to this are value added deals where you can come in and reposition the property to create a higher value in the near term.

By doing this your yield will go up substantially and in that situation you could accomplish giving your investors a superior return and if certain performance metrics are accomplished you would get rewarded. These deals are rare at this time.

This is what has led me to flipping the houses which so far have generated on average a return in the triple digits because of the leverage I was able to achieve (Disclaimer – not every deal will make money which will take thereturn down. I have lost money on deals or had to keep properties I planned on selling in the past and am sure Ithese things may happen in the future if I buy enough properties. My goal is to try to achieve an average 15-20% IRR for my investor partners.

The opportunities in San Diego seem to be in the 1-4 unit (this is just my opinion and a lot of people who are a lot smarter than me are making money in other ways). With that being said I don’t seem to be the only person to know this and there is a lot of competition and the prices have substantially went up over the last 6 months. I feel very confident I can keep turning up these deals. The difficulty is doing at a large enough scale.

So back to my original point.. Apartment buildings….

The reason I am buying these houses is so I can keep active in this tumultuous market and generating money waiting for some bigger opportunities to come along in the form of Apartment buildings. These are what I want long term, thousands of units each generating hundreds of net dollars each.

Well for whatever reason someone hasn’t told the apartment market in San Diego there is the Great Recession happening. There is still be a big disconnect between what most buyers are willing to pay and what sellers are willing to sell for. There has yet to be a clearing or a sell off at a price buyers are willing to pay to generate any reasonable sales volume.

The best deals I have seen were in the upper 7 CAP range (in the hood, needed work). Even at an 7 CAP with 6.2% financing running about 40% expenses and a 5% vacancy the actual cash on cash returns is 6.25%. How can I feel right about Syndicating a deal with a 10% return to go around? That’s why I haven’t even attempted to chase San Diego apartment deals.

Well this deal I referred to at the beginning got me thinking very hard about where the future opportunities may lie. Apartments in markets that have been decimated like Phoenix, Las Vegas, the Inland Empire and select other areas. There are many other markets I am sure you could go to I just like that I can get to any of these places within hours (this is really important when doing research and due dilligence since I will have to travel there frequently when buying and researching these markets). I also like the fact that these markets typically have gone through BIG ups and downs. I explain a little more about what we are looking for here.

So with all that being said I found a deal (in neither of these markets but close) that so far has seemed extremely attractive. You may ask what makes it attractive Curtis and how do you know if it is worth pursuing.

The first thing I do is to try to figure out what is wrong with a deal. Why hasn’t someone smarter and better looking than myself snatched it up? Don’t tell anyone but I’m not that smart so if I see a good deal why doesn’t anyone else? I play the green light red light game or as CCIM teaches go/no go analysis. What I am doing is doing strategic research to decide whether I move on to the next step. If something comes up that kills the deal or makes me research that item more it is a RED light, if I am satisfied with my findings it is a GREEN light. I do this until I either hit a RED light that doesn’t let me go further or we buy it.

I run some stress tests on the numbers to see at what point would we lose money and then try to gather and verify data which will lead me to a conclusion on whether to buy or not.

It is kind of like a red light green light game. You keep on playing into you hit a red light. That red light could be information you find out that makes the deal no longer attractive. For example if I run the numbers at a certain rent level and after surveying local owners and property manager I realize those are not achievable one of two things need to happen.

  1. Drop out of the deal
  2. Reduce the price to a level that makes those new rents throw off an acceptable return

Let’s play red light green light with the out of area deal.

I received a postcard from an out of the area agent with a national company that doesn’t have the best reputation (that doesn’t mean the individual agents are bad BTW) who has this listing which is an REO in receivership. I normally would throw this into my circular filing cabinet except a few things caught my attention that caused me to proceed to the next step (gave me the green light to move forward).

  • Price per unit is $15,000
  • Price per square foot is $20 (it would cost about 4 times that to build it)
  • In a city that I go to anyways and have friends who own property there

The first red light was that the property was only at a 8.5% CAP rate which to me is not that attractive in a secondary out of the area market. After doing some research the property is a 8.5% CAP because it has been in receivership and the occupancy has sunk to around 65% (I verified this by calling area owners and the current onsite manager).

So a couple questions I need answered.

  1. What is a reasonable occupancy level I can achieve on this property
  2. When
  3. How much will it cost me to get there? i.e. repairs, making units rent ready, has the previous owner totally neglected it and will it cost me a lot of money to make the units marketable, etc.

First – I talk to the broker and he explains why it’s 65% occupied and that he has underwritten the deal at 85% occupied and $150,000 per year in expenses. Now it’s time for me to research because at these numbers it is a stabilized CAP rate of 12.4% which is now getting much better.

Second – I call local property owners and property management companies to talk to them about the market (Google is great for this kind of research)

Here are some questions I ask.

  • How is the market. “Hard hit but things that are priced right rent”
  • What is your vacancy rate? The vacancy rate was less than 10%
  • Is $3,000 per unit reasonable for expenses? “very reasonable”
  • What is the lease up time? “4-6 weeks”
  • Do you think this deal (don’t tell them the address) is a good one? “YES!”

OK, well it’s a green light time to move forward with more research.

Now I start looking at the historical books and records and drilling down deeper into my due diligence. Here is what I found

Bank owned.

  •  Purchase Price $800,000 (purchased and appraised for $3,150,000 and a loan of $2,250,000 in 2006)
  • 2.6 x GRM
  • $20.17 per square foot
  • $15,300 per unit (next closest deal on the market is a bank owned at $35,000 per unit)
  • 2 Properties total.
  • 22 & 30 units next to each other. This give more options on the exit.
  • A 12.5 Cap at stabilized income.
  • Assumptions
  • 15% vacancy.
  • This building has had a historic vacancy rate greater than 95%.

o 15% would equate to triple the historic average

o 50% higher than the local property managers and owners I have already surveyed.

  • This property has historically enjoyed high occupancy rates. It is located next to a college, a grocery store and residential homes.
  • The building currently is at 65% occupancy
  • NOI of $100,825
  • This is ½ of the historic NOI
  • NOI in 2008 was $195,000
  • Expenses at 50% higher than 2006 numbers.

IRR is in the high 20’s low 30% range over a 5 year hold based on the assumptions above for NOI . (if the NOI was back to the levels 10 years prior the IRR could be 10% higher than this)

o assumptions

  • financing in the 6.5% – 7% range the IRR is in the high 20% – low 30% range
  • Sale price $1,100,000 which would be about 1/3 of the price paid 10 years earlier.

 In the last 6 years there has been over $400,000 in improvements

o These renovations included air conditioners, new appliances, new roofs, resurface asphalt, carpet, fencing, painted six buildings, landscaping, laundry room, swimming pool, and renovation of 28 units.

o I have been told the property is still in good condition and not to neglected


2004 2006 2010 Assumptions
Price $3,150,000 $800,000
Price Per Unit $60,576 $15,384
Price Per Sq. Foot $79.91 $20.17
Occupancy 100% 65% 85%
NOI $204,647 $66,990 $100,825
Expenses $98,290 / 29% $137,541 $152,624 (54%)
Effective Gross Income $336,612 $204,531 $253,449
Improvements $414,582
CAP Rate 6.5% 8.37% 12.4% Stabilized
GRM 9.36 2.84

[1] Information gathered from April 2006 Appraisal. Crown Appraisal Group collected historical property data.

[2] Interviewed 2 property managers and 1 owner totaling over 400 units. Effective vacancy is less than 10%

[3] Owners and managers say NOI is down 25% from 2006 levels.

[4] Information given to the appraisers from the sellers in 2006. Sellers renovated property in 2004

Deal Points

  • Needs to be an all cash purchase
  • Short due diligence 14 days
  • Quick close 21 -30
  • Stabilize 6-12 months and refinance out 65% or as much as possible at market rate interest
  • Sell and exchange in 3-5 years
  • Preferred return to you and equity split TBD

Here is why I like this.

$15,000 per unit & $20 per square foot. This is trading at a third of replacement cost and about 1/3 of the previous sale in 2006. In addition it is about 1/2 the cost of any other property on the market in Havasue.

Plan

  • 15,000 Per unit 2006 sold for $60,125
  • $20.12 per sq. ft and in good condition
    • insurance underwriting it at $115 a foot.
  • 35% vacancy because of being in foreclosure.
    • Underwriting at 15% once stabilized
    • As I have been doing due diligence talking to other property owners and property managers so far the 8-10% has been recommended.
    • Rents are in line with market
  • 4-6 week lease up period
  • 2 Separate buildings which will allow us to sell them individually. Having 2 smaller buildings will open up the possible pool of buyers which could increase the overall aggregate value.
  • Using about $3,000 per unit for expenses which equates to about 50% of the Gross Scheduled Income. Considering the property tax only consist of about $160 of those expenses the rest will go to all the other expenses. This has been agreed on by property owners/mangers a very conservative number.

Will need to probably be an all cash purchase or bridge loan until the place is stabilized.

Exit strategy is to stabilize and get debt on it and pull out 65-75% of the cash invested while getting long term financing in the 7% range and sell it when we hit a our target IRR which I am still contemplating what that will be.

Sell it as

The IRR will be based on some reasonable sales price assumptions. Once the target is achieved we will sell (or whatever investors want to cash out they can) and exchange into other opportunities taking advantage of the tax deferral of a 1031 in addition to capital gains tax and depreciation along the way.

The lowest price active comparable is at least double the price per unit than this property
After purchase buy some more bank owned properties at the same price per unit. We will now be the new comp and can justify the lower price. This will drive down some other prices allowing us the opportunity to buy more.

So this was written about a month ago, and I have to be careful about putting up to much information when I’m working on a deal. We put in an all cash offer at $810,000 hoping that everyone would try to low ball the deal with a 2 week due diligence and a close of escrow 2 weeks later. Well after a week of waiting the bank took another lower offer that only had a 5 day due diligence. In this situation we couldn’t of matched that and that is the way the cookie crumbles.
I probably spent about 60 hours doing research running scenarios hiring property mangers to walk the property and tell me what they can rent it for. The reason I tell you this is this business is about 95% of the time chasing deals and being prepared for that 5% of opportunity. I knew our shot was small and we got in the game late, but I decided that the potential was worth spending the time on this and that we had a shot.
So in summary it’s important to be able to quickly understand a market and know how to research a property and an area. There are many ways to do this and you need to be very good with your time management and prioritize your activities. Playing the red light green light allows you to focus on one activity that is important without moving on to another activity that really won’t matter if the previous activity isn’t satisfied.
If you are reading this and are in the Phoenix, Vegas, Inland Empire, Or San Diego market and you have any deals please let us know.

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New Funds Fuel Investment on Crittenden

About two weeks ago I was contacted by Cindy Tullues the reporter for Crittenden who publishes numerous well respected reports including The Apartment Report TM .

Crittenden was interested in reporting on the growing number of small firms like ours who were putting together funds (syndications) and wanted to know what made them tick.

I was actually unaware the article came out until I received an email from an interested investor expressing interest in our venture this morning and it has only been one day since publication!

Below is a summary of the most recent article I was quoted in. The summary of the article talks about  many of the big investors are on the sideline or only looking for Class-A assets leaving great opportunities for the smaller entrepreneurial companies putting together syndications.

New Funds Fuel Investment on Crittenden.

NEW FUNDS FUEL INVESTMENTS

Expect a growing number of investors starting to go on the offensive again this year by raising and utilizing fund resources to opportunistically shop for assets across the country.  A large cluster of bigger institutional funds are taking a temporary hiatus, leaving the arena open for smaller investment vehicles priced below the $30M mark to make their move. Look for such firms including JVM Realty Corporation, JDT Holdings LLC,Gabhart Investments Inc. (GII) and KC Venture Groupto fish around for market-specific deals using discretionary cash coffers.

As the availability of for-sale product continues growing this year, bet on more capitalized entrepreneurial funds to pop up and take advantage of good pricing. Most will cash out or look for an exchange at the end of the hold period.  Don’t be surprised to see the majority of smaller funds modus operandi jump on distressed plays that can yield tantalizing returns. On the other side, count on select larger funds from players like Bell Partners to remain active and shop for Class-A/B complexes, while Boston Capitalcloses on a mega tax-credit fund and is already hard at work on a succeeding fund of nearly $300M.

The article goes on to state that it is no surprise these funds are favoring apartments as a safe risk adjusted return. Because of this buyers are trying to raise money to take advantage of these opportunities. Especially with the Fannie Mae, Freddie Mac and FHA providing such attractive apartment financing at such low rates.

The discounts these funds are seeing are on average 15% to 25% and are focused on older Class-B and C products in historically good markets. Most of these deals are penciling out with IRR’s of at least 20% (we are shooting for 25% over a 5 year period).

The report also mentions that on the other side larger capitalized buyers typically chase after quality Class-A product. This is what I am seeing also.

We were the smallest fund on this list (for now).

Gabhart Investments looks to raise an aggregate $2M investment vehicle to acquire between 60 and 200 units in recession-beaten locales such as Arizona, Las Vegas and California’s Inland Empire. Expect the equity to be raised within six months and be fully committed over a 12-month period. The fund continues to look for JV partnerships and qualified investors putting in $50,000 – $500,000. President Curtis Gabhart hopes to pay cash for the deals and eventually refinance them and recycle the capital. He looks for an IRR in excess of 20% and a three- to five-year hold. Count on Class-B to -C distressed.

The ranges of these Real Estate funds were anywhere from 2-25 million in equity and were in many different markets throughout the U.S. including, Florida, Texas, Phoenix, Las Vegas and others.

Our apartment acquisitions will be primarily within a 3 hour drive or flight from San Diego which will include Phoenix, Las Vegas, and The Inland Empire. In addition we feel that San Diego will have some select opportunities towards the end of this year and through 2011 & 2012. In addition to apartments we will also seek other complimentary opportunities like 1-4 unit flips while we are in that market which will give us better efficiencies and economies of scale and build stronger and better relationships with the locals.

This new fund will expand on the recent success we have had buying and flipping REO single family homes. Currently we have more investors than inventory and this will allow us to expand the opportunities for us and our investor partners.

I will post our business plan soon that we are using for the 1-4 unit single family homes and for the new apartment venture. To learn more about what goes into developing a private placement memorandum (PPM) you can read a previous post by clicking here.

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