The Full Story Behind Our First Big Real Estate Winner
A 650-mile road trip to an old apartment complex... Immersed in a 'cloak and dagger' routine... Positioned for success from the start... The full story behind our first big real estate winner... An incredible return in almost no time at all...
'Steve wants you to do what?'
My wife thought I was joking. I (Vic Lederman) had just shared my plan to drive 650 miles in a single day to look at an old apartment complex in South Florida.
I wasn't joking, though. My mentor and boss, Dr. Steve Sjuggerud, had asked me to check out this property in his place...
I'm the analyst on his team who's responsible for our True Wealth Real Estate publication. Among other things, I work alongside Steve to find the best private commercial real estate deals available through CrowdStreet's marketplace.
And this was the kind of potential deal that required a close-up inspection. At the time, I told our subscribers...
Of all the types of real estate sites to visit, this is likely the most important.
You see, the old apartment complex is called Lakes of Margate. It was built in 1988. And importantly, by the time of my visit in the summer of 2020, it needed a refresh.
That's why Steve wanted to make sure someone on our team saw it. He knows projects like this require firsthand knowledge. You've got to know the area to be sure the numbers aren't a mirage.
It was the first deal that I wrote up for True Wealth Real Estate... And it just closed last month.
Now, that happened a lot quicker than anyone imagined. Heck, it wasn't supposed to close until 2025.
But I'm thrilled to say... it was a smashing success.
In short, the booming housing market sped everything up. As a result, we landed a big winner for our subscribers in a much shorter span – nearly doubling our initial projections.
And in today's Digest, I want to share the full story of how everything played out...
The day after the chat with my wife, I drove from my home near Jacksonville to South Florida...
When I got there, I met with a representative from Lynd.
If you're not aware, Lynd is one of America's most successful property development and management operations...
Roughly a year and a half ago, the company had more than $4 billion of transactions under its belt. And it managed more than 15,000 units across 10 states.
Lynd is a big deal... And as such, I expected my visit to the Lakes of Margate property to be full of formalities and corporate platitudes.
Instead, I became immersed in a 'cloak and dagger' operation...
Marshall, the Lynd representative assigned as my guide, was a numbers guy. And I soon learned that he was responsible for the due diligence on the project.
It was perfect. I had bypassed the suits and gotten access to the guy who actually put the deal together. He knew every aspect of it. And then, he said the magic words...
"Would you like to see the buildings I used to base our projections on?"
Heck yes! This was much better than I had hoped it would be.
So we got into his car and drove to another nearby apartment complex...
"This is one of the local buildings we're using as a reference for the remodel," he told me.
We pulled up to the leasing office and walked in. That's when I got to see Marshall's spy routine...
"Hi, I'm here with my friend. He's thinking of moving to the area and is looking for a one- or two-bedroom apartment," he said.
The manager went through all the usual questions. Marshall had the simplest yet most reasonable answers queued up. Then, he got to the crux of it...
"Do you have a unit we could take a look at?"
We handed over our IDs and walked away with a key.
"So this is what we're basing our remodel on," Marshall explained as we walked into the unit.
"You can see the lighting fixtures are a lot nicer. The floors are updated. And they've done the stone countertops and stainless-steel appliances in the kitchen. This is basically our same interior renovation plan."
The apartment looked great inside. The buildings were almost exactly the same as the Lakes of Margate property. But here's the important part...
"So as you saw on the slip the manager gave us, they're asking $1,560. Right now, Lakes building is charging roughly $1,230."
In other words, at the time, the Lakes of Margate property was painfully under market rates.
It soon became obvious that the Lakes of Margate deal was positioned for success...
Marshall and I went through all the numbers of the deal itself... And we dug through the "comps" together.
So much of real estate is about comps... They're simply the comparisons you make against other properties. It's how you know whether or not your expectations make sense.
Now, it's common for developers to pitch rose-tinted comparisons and projections to investors. They want to make the deal look as good as possible to secure their financing.
But the thing is... I got exactly the opposite from Marshall and Lynd. Everything we looked at was conservative and reasonable.
Marshall had done his homework... He knew the local area. And he knew exactly how much wiggle room the project needed.
We had talked about the possibility of an early closing with the Lakes of Margate project... But I'm willing to bet that even he didn't expect how quickly everything played out.
After all, closing early on a deal is one of the easiest ways for a developer to pop the internal rate of return ("IRR") for investors. IRRs work like annualized returns... If you shorten the timeline but still make the same amount of money, the IRR goes up.
And as I alluded to earlier, the Lakes of Margate deal came in for an incredible early landing...
Lynd planned to buy the property, remodel it, and then sell it for a profit.
Originally, the company intended to take its time on the remodel... And it would let the income stream from its apartment tenants pay for much of the deal. Overall, Lynd planned to hold the property for about five years.
The plan was great. But as regular Digest readers know, we're in a wild real estate market right now...
The rental market is hot. Darn near everything is getting more expensive. And Lynd seized the opportunity...
Sure, the five-year plan for the Lakes of Margate was great. But the company realized that it could do even better...
Lynd initially expected to wait a year before doing a big remodel on the property. Instead, it chose to do a smaller remodel right away... Then, it bumped rents up to the market rate.
And Lynd succeeded on that front in a big way...
The net operating income ("NOI") for the Lakes of Margate at the time of Lynd's purchase totaled roughly $2.5 million. And in roughly a year, the NOI for the property climbed to more than $3.7 million.
That's a jump of roughly 45% in income in a year. It's truly incredible growth. And it was nearly 6% better than Lynd thought it would be able to do in five years.
Think about that... The developer thought it would take half a decade to grow the property's operating income that much. And it expected a huge capital outlay to get there.
Instead, it made some minor improvements, raised rents to the market rate, and found a buyer in a much shorter time frame.
The final results are outstanding... The project was supposed to hit an IRR of 17.2% over five years. Instead, the deal closed at a 34.2% IRR in roughly a year.
It's exactly how you hit a home run with a conservative strategy...
I hope it's clear what an incredible success this is.
A 17.2% gain per year for five years is an enticing offer... That would've been a great return for our True Wealth Real Estate subscribers.
But in the end, the deal sponsor did even better... It achieved its ultimate goal in a year, with less money than first expected... And that translated into a 34.2% IRR.
This big winner became possible for two reasons...
First, Lynd's conservative approach – led by our guide, Marshall – worked perfectly. Along every step of the way, Marshall built wiggle room into the project... I saw that firsthand when we toured the nearby apartment buildings he used as comps.
The second is that Lynd capitalized on current market conditions...
When it comes down to it, we're at a unique time in the real estate market...
And the conditions we're seeing today are producing special opportunities like the Lakes of Margate property.
It's a setup that I urge you to act on. I know that Steve feels the same way, too... In fact, he considers the real estate boom to be his "No. 1 prediction for the 2020s."
Folks, this is exactly why we launched True Wealth Real Estate back in 2020... And it's why we share a new opportunity with our subscribers every month that's specifically designed to capitalize on today's market conditions.
Some months, we focus on private real estate deals like the one I detailed today. And in other months, we highlight stocks that are best positioned to excel as the boom plays out.
This strategy allows us to target every facet of today's wild real estate market.
We're already seeing success in the model portfolio, too... Our average return right now on the stock positions we've had open for more than a year was 61% through yesterday's close.
Steve recently put together a special presentation on the real estate boom. It's a big story... And it's one that he wants every investor to see and understand.
You don't want to wake up a few years from now and realize that you've missed the boat. Instead, you can understand exactly what's happening as it does. And even better, you can discover the best ways to put your hard-earned money to work during this incredible boom.
Don't miss out. It's time to get involved today. Watch Steve's presentation right here.
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In today's mailbag, a subscriber comments on Tuesday's Digest. Do you have a comment, question, praise, or rage? E-mail us at feedback@stansberryresearch.com.
"The importance of your comment that Stansberry values different outlooks from its editors to prevent group think was highlighted earlier in the same Digest when you quoted [Federal Reserve Chair Jerome] Powell saying, 'We and all other mainstream forecasters forecasted by now we'd be seeing much lower inflation.'
"I wonder who he considers the mainstream forecasters? Maybe only the ones that agree with him?" – Paid-up subscriber Eric K.
Corey McLaughlin comment: Good point, Eric. I also thought that quote about "mainstream forecasters" from Powell was very telling about how the Fed thinks – or doesn't think – through things.
Good investing,
Vic Lederman
Jacksonville, Florida
January 12, 2022