Happy New Year. Look back on 2019!!!
In 2019, we officially transitioned Valorem Ventures from a real estate side hustle for the three managing partners into a well capitalized and structured venture that will endure. There were three very important real estate skills we honed in 2019 that we will seek to apply in 2020. These skills were:
1) Patience - We source about 3 deals a week through our networks, which equates to ~150 deals we looked at in 2019. From these, we conducted preliminary due diligence on about 2 deals a month, which is ~24 deals in 2019. We did detailed due diligence on a 3rd of them, which is 8 deals we seriously looked at in 2019. Of these deals we closed on 1 and walked away from 7. Just like in the venture capital and private markets we are seeing an excess of capital chasing deals in commercial multi family real estate. A lot of remote first time buyers are chasing deals and driving up the market. Our willingness to not chase deals and stick to our investment thesis and underwriting crtieria served us well in 2019. As these first time buyers are unable to provide operational oversight remotely and their expensive debt principal payments start kicking in we expect many of these properties we passed on to come back on the market at favorable terms and our familiarity with them will allow us to acquire them in the future.
2) Scale - There are multiple funding options available in commercial multifamily real estate. Our ability to cultivate relationships with some of the premier lending firms in the nations and leverage them to acquire Freddie/Fannie backed mortgages has allowed us to underwrite effectively with reduced risk and great terms. In addition, we have vetted and shortlisted top notch property management firms, landscape contractors, maintenance staff, and general contractors that are available to serve us across the TX market; allowing us to complete value add projects on time and budget and with high quality. This prep work we have done in 2019 will allow us to scale to 1000+ doors within the next 18 months.
3) Defend Value - A common question when we did our first deal was: Is a 6% cash on cash return good enough? Is a 15% IRR good enough? I can do better on the stock market. We have gotten much crisper at successfully answering this and have been blessed to have found likeminded equity investors and partners who get it. When I joined Amazon in 2013, the stock price was $260. When I left Amazon in 2018, the stock price was $2040. Eighteen months later the stock price is $1875. Over the long haul the stock market will do better than most other asset classes but you do not want all your eggs in one basket and we are seeing some high volatility in the stock market. You will only make money when you sell your stock. It is illiquid and not generating any income while you own it (unless it is a dividend paying stock, which is unusual for growth stocks). The interest rate on a standard savings account at national banks is about 0.09% APY. Our investments pay out at least 6% annually. That is 66 times more than national banks are paying out. Making a 15% annualized return on commercial multi family real estate investments with relatively low risk by partnering with us and allowing us to do all the heavy lifting is a sound strategy for most smart investors looking to build a diversified portfolio. If you want to learn more about this and see if one of our investments might be right for you please drop us a note at email@example.com