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Using private real estate to snowball your cash

Updated: Apr 15, 2018


An object in motion stays in motion, we all know the law of inertia from Newton. The same goes for your money. You start to get your money out there working for you and boy can that snowball grow. This is the kind of stuff that got me all jacked in my college finance courses.


Let me show you how this can be achieved through private real estate placements and in particular the use of cash out refinances, exits, and other large liquidity events.


15 months ago we closed in partnership with our operator on a 200 unit apartment in a great sub-market in Dallas-Fort Worth. The business plan on this investment called for total renovations on all 200 units, re-branding, new property management, along with additional deferred maintenance and capital expenditures.


Our sponsors know that investor returns are key along with capital preservation, and as such preferred return distributions started by the end of month 1. My capital was already earning cash before the work even started. Follow next because this piece is important to the snowball effect.


Once the project is live I set the distributions for direct deposit into a specific account, this way I can track, and start to restock the liquidity. For the next 14 months cash came in each month on a preferred return schedule, I received monthly newsletters with photos on the renovations, rent rolls, community news, and other key information that keeps me up to date as a passive LP.


Just last month the business plan execution was all but finished, renovations completed, with nearly every lease turned over and new leases signed for increased rates in line with the upgrades. Property management now 1.5 years in place had increased efficiencies which means a decrease in expenses.


We now have INCREASED rents and DECREASED expenses. The result is an increase in NOI( net operating income) of the building and therefore an increase in the VALUE of the building.


Our operator now was in a position to refinance the debt on the property and pull out a large sum of equity. This refinance enabled a 40% return of principal to the LP investors, which coupled with the monthly preferred returns rounded out a 52% return in 15 months.


So now what? Well because we partner with multiple best in class operators and deal flow is strong, there was opportunity to partner on another project. I only had to add a small amount of new cash (snow) to my returned capital (snowball) from the last project.


And just like that the ball continues to get bigger and bigger gathering more and more momentum each month.


With enough time you can grow the amount rolling in and out of investments that they will begin to compound and pay for themselves. A true and tested concept.


Take a look at your portfolio and see where money is working for you!


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