GREETINGS FROM HOUSTON
We hope you had wonderful holidays and new year. A lot has happened since the last newsletter.
Neither Rain nor Sleet nor Snow …
It seems Houston’s extreme weather conditions this year are not limited to hurricanes. It snowed yesterday for the third time this winter, the first trifecta in more than 40 years. Schools closed, flights cancelled and the freeways full of wreckage, but your Fund managers kept on schedule. After 30 minutes on the icy freeway on the way to an escrow closing, imagine our surprise when we spotted of one our trucks in the next lane! The snow was unfortunate as we had dozens of Realtors scheduled to do a broker caravan featuring one of our listings.
Fund Transitions from Acquisitions to Operations
The life cycle of the Fund can be divided into three phases: Acquisitions, Operations, and Liquidation.
Acquisitions. Acquisitions opportunities are winding down. In the last week here in Houston, we found only two additional properties meeting our standards which we are working to put under contract. We will undoubtedly find more opportunities in the weeks ahead (and we particularly hope that foreclosures will present opportunities in the future), but the volume of potential deals has declined steadily since Christmas. Accordingly, we have decided to close the Fund to additional capital. The Fund target was $5M and capital raised to date is within a few percentage points of that target. We are grateful for all the enthusiasm and trust of our investors, and regret that this closure leaves us unable to accommodate a good number of referrals from our existing investors. However, with the acquisitions phase winding down, the managers are able to focus all our energies on operations.
Operations. Operations consists primarily of construction management and positioning the assets for liquidation. On the construction side, we have expended over 50% of our rehab budget of $949,068 for the homes closed to date. Out of 23 active job sites, excluding one we are using as a “man camp” to house our work force and another which has presented location and labor challenges, we are beating our 60 day schedule with an average of 55 days from start to rent ready. We are very proud of this stat as we have encountered other investors in the area who, due to local labor constraints, are unable to even begin their projects in the same timetables that we are completing ours.
Rent vs. Sale
Operationally, one of the most interesting challenges is the “rent versus sale” decision. Overall, the Houston real estate market is strong. According to a year end observation by the Houston Association of Realtors, Hurricane Harvey didn’t stop Houston from reaching “record heights in 2017” with the median home price up 3.8% from 2016. However, because we are among the earliest to complete our rehabs, there is precious little data on whether buyers will impose a “flood stigma” on rehabbed houses and, if so, how much. We expect the answer will vary dramatically by area. We are carefully observing the market and will test it with our own listings. Our goal is by the end of next week, we will have 7 houses listed for sale. The feedback we receive will guide us on whether to proceed with the sale strategy as to any particular asset or whether a rental approach until that submarket stabilizes will yield a better return. Stay tuned
As always, we look forward to hearing from any of our investors who have any comments, concerns or questions.