The forecast on our latest deal

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As the economy has continued to improve, both nationally and here in LA, it has become harder and harder to find deals worth doing.

That said, it’s definitely not impossible.

Today, we are closing on a deal with the following characteristics:

  • Currently a vacant triplex
  • Paying $220 / sq ft
  • Suitable for conversion into a 5 unit building

By the time we’re done, in around a year, inclusive of a fee to us for managing the project, am expecting the building will yield approximately 7.5% / year unlevered.

Assuming that rates for apartment loans are at 5% by then (they’re currently around 4.5%), I think we’ll be able to refinance¬†out ~$1.6MM of the ~$1.7MM investment.

The cash-on-cash yield on the $100k remaining in the deal ought to be ~25% / year.

Depending on rent growth, etc., the investor should have 100% of his money back within 2-4 years of stabilization. Then there will be 2-3 years where he gets all of cashflow from the building to pay down the preferred return accrued during the construction process.

Thereafter, the investor and Adaptive will share in a (hopefully growing) cashflow forever.

Who says you can’t find good deals anymore?

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