2018 Year-End Report: A Tale of $20,000
By Fund Manager Datta Khalsa
Our fund provides a nice alternative for investment that is diversified between not only real estate holdings in multiple markets but also in notes generally paying between 12% and 18% returns—even during down cycles.
Back in October of 2013, shortly after we started Firmus, one of my clients invested $20,000 in the fund. Since then he has left it untouched, neither adding nor withdrawing from the account. What has happened with his investment makes an effective case study of the fund’s performance over the past 5 years:
By the end of 2013, his capital grew to $20,521.54, setting a baseline to measure the investment’s growth on an annual basis at the end of each successive year. The fund saw 10.01% of growth in 2014, bringing the investor’s balance up to $22,575.77. The next year brought a record annual return of 24.85%, bumping the value of his shares to $28,186. In 2016, his investment grew another 11.52% to $31,434.29, followed by a gain of 18.28% in 2017 which brought his balance to $37,180.14.
As of the end of 2018, his original investment of $20,000 has grown by an additional 7.58% to an estimated value of $39,998.54—on course to double in just over 5 years under our care. The average annualized return has been 14.45% over this period, compounding to 18.98% for our investors who have rolled these returns back into their shares.
It should be noted that these returns are based in part on the estimated accrual values of our real estate portfolio and that historic returns should not be relied upon as an indicator of future performance, but it is satisfying all the same to be able to look back on these first 5 years with a sense of real achievement when you compare it to the performance of the passive investment returns of many mutual funds.
And while an active investor might be able to exceed these types of returns on any one individual project they actively manage during an up market, our fund provides a nice alternative for investment that is diversified between not only real estate holdings in multiple markets but also in notes generally paying between 12% and 18% returns—even during down cycles. And in times when real estate slows, the demand for private money often increases.
Moving into 2019, we hold an estimated $6.1 Million in assets across the states of California, Arizona, Illinois, Texas, Arkansas, Ohio, Pennsylvania and Florida, and our membership roll includes 24 individual investors and counting. As certain sectors of the economy show signs of slowing, in order to free up non-productive capital we are restructuring several of our out-of-state partnerships, including in Texas where we are currently having our partner buy us out at our accrued value on a flip project that was taking longer than expected there. And in Ohio we have opted to convert our partnership shares on the remaining 5 properties we funded there into a cross-collateralized note, with the partner taking over full responsibility for the projects, and instead paying us a flat 12% or 12.5% return based on the current accrued values we have assigned to those properties.
In a more active region of the country, we have started a promising home flip with a partner in Florida that is being renovated to go on the market this Spring with a healthy projected profit. Meanwhile, our investment in Blythe, CA continues to pay out at 18%. And the 15-townhome partnership development we are funding in Aptos is coming along nicely through the planning and entitlement stages, with ample carrier rental income in place to help keep costs down.
With the proceeds of the recent profitable sale of a 16-unit apartment complex we held in Phoenix going into a development partnership across town there on a property with existing rental income and plans to build 20 new townhomes in an upscale area, we managed to shelter those gains and convert them into a new investment that shows great upside potential.
We are also receiving a negotiated $5,000 per month from our buyer for the property we are selling in Fresno to help offset the costs of its closing date being pushed back to March of 2019 to allow the buyer to complete the final stages of relocating the existing tenants to start their proposed mixed-use retail and low-income housing development. Once that property closes escrow, we can start the active accrual of those funds again as well, and the proceeds will be exchanged as additional capital into the Phoenix townhome development project, thereby also deferring our capital gains from the sale of the Fresno property, which at $1.8 Million is being purchased by the buyer at twice what we paid for it.
By leveraging these gains and converting non-productive capital from fully accrued assets into actively producing investments once again, we should be well poised for a return to double digit growth moving into the new year, and we look forward to tracking and reporting the continuing tale of that self-same $20,000 as it continues along our shared path of progress.
Datta Khalsa is a licensed Real Estate Broker (Cal DRE#01161050) and a member of the management team for Firmus Financial, LLC. He can be reached at (831)818-0181 or firstname.lastname@example.org.
Firmus Financial, LLC is a small-pool investment fund that is regulated by the State of California per exemption with the SEC and open to accredited investors in all 50 states. Any projections made herein, whether specific or implied are purely speculative as past results are not indicative of future performance. Prospective investors are able to purchase shares by signing a Subscription Agreement after reviewing the fund’s Operating Agreement and Private Placement Memorandum. Interested parties are advised to consult a qualified financial advisor and/or tax professional before making any investment.
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