What is the real estate investment deal?
In this post, I will be describing my investment in a 16-unit apartment building as a Joint Venture deal using the BRRR strategy.
Finding out the ROIs of other real estate investors can be difficult. It’s not as simple as looking up the historical ETF returns on the Vanguard site. You need to ask other real estate investors what returns they are achieving with their strategies, but some may not be so forthcoming.
I think this post may be interesting and educational for others to see what kind of returns are possible in real estate investing using the BRRR strategy. This type of investing in multifamily buildings takes a significant amount of money and sweat equity, but the returns can be worth it in the end.
Are you the active or passive investor in this investment?
In this Joint Venture, I was the passive partner who provided the funds for the purchase and renovations of building.
My Joint Venture partner provided the “sweat equity” in this deal. He was responsible for finding the property and renovating the property.
The JV deal was structured as 50% / 50% share.
A successful JV deal like this one requires trust between the Joint Venture partners. There should be trust in the passive partner to reliably provide the funds for the purchase and ongoing renovations, and there
How much was the investment? What was the Return on Investment (ROI)?
Purchase Price = $1,800,000
Down Payment (25%) = $450,000
Closing costs: =$23,000
Renovation costs = $1,300,000
Total Investment: $450,000 + $23,000 + $1,300,000 = $1,773,000
The renovation period took 12 months to completely finish.
After the building was completed renovated, the building was re-appraised.
New Appraised Value = $4,020,000
Total Forced Appreciated Value: $4,020,000 – ($1,800,000 + $1,300,000 + $23,000) = $920,000
50/50 Joint Venture Share = $897,000 / 2 = $448,500 equity per partner
Return of Investment (ROI) : $448,400 / $1,773,000 * 100% = 25.3%
Funds for the renovations were not invested in a lump sum at the beginning of the project but rather injected in installments throughout the year as the renovations progressed. Therefore, technically, if I were to calculate the ROI using a time-weighted return (eg. Modified Dietz method), then the ROI would be greater. But I ignored this in order to keep things simple.
By refinancing the building at the new appraised value, we are able to take my funds out of Apartment Building #
Total Monthly Rental Income (15 2-BR units and 1 1-BR unit) + Parking + Laundry = $23,000/mth
Annual Gross Income = $276,000
With this amount of revenue from a small apartment building, it is easy to see why real estate investors look at each property as a business and why many strive to invest in multifamily buildings. The returns and rental revenue have the potential to be lucrative!