Randall Court is a 44 unit property in Gladstone, MO that was purchased in October 2013.
The property exemplifies the True Summit Investments approach.
Pre-Purchase at a Glance
- 44 units in poor shape, 60% occupied, purchased for $1mm in Oct 2013, $22,727 per unit.
- $200k estimated for improvement capital, or $4545 per unit. Effective purchase price totaled $27k per unit.
- Comparable apartments in good condition in the area were trading for $45k-$50k, $18k per unit more than Randall Court.
- Estimated capital need - $340k in equity, $870k in debt
- Investment decision in a nutshell - equity investment of $7,340 per unit, potential upside of $18k per unit.
- Estimated end of year 2 NOI (NOI = net operating income = revenue minus operating costs) at $142k for cap rate of 11.75% on $1.2mm effective price
- Estimated end of year 2 cash flow of $71,000 vs $342,000 equity, for pre-tax cash yield of 20.7%
At Purchase Closing
- Actual financing sources of funds: $323k equity, $870k debt
- Actual uses of funds: $1.015mm purchase, $178k operating capital
Performance Review - 3 Years After Purchase
- Used $177k operating capital plus operating cash flow to upgrade all units over first two years of ownership
- Grew revenue from $207k at purchase to $330k at YE16
- Grew NOI from $37k at purchase to $170k at YE16
- Refinanced in Aug 2016. Reappraised at $2mm, 80% LTV given, new loan proceeds of $1.595mm.
- Remaining original loan balance of $790k paid off
- $805k net proceeds from refinancing, all tax free
- Approx. $95,000 in operating cash flow until refinance
~$900k total cash flow extracted by August 2016 from a $323k original equity investment in October 2013, a 2.78x return on investment (ROI) in <3 years. IRR of approx. 37%. Property is still owned and generating monthly cash flow averaging $8k per month.