Over the course of our first five full years, Firmus Financial enjoyed average annualized returns of 14.45%, compounding to 18.98% for our investors who rolled these returns back into their shares. The end of last year saw our annualized return dip into the single digits for the first time, posting a 7.58% profit, but we are pleased to report as we round the half-way point for 2019 that the returns are moving back toward double digits.
Simply stated, the fund’s returns are based on the combined performance of our assets. Using a method termed mark-to-market appreciation, we set a timeline for each investment starting with the initial cost as of the date of acquisition and ending with the projected net proceeds as of the forecasted date of disposition or payoff. Each investment’s individual returns are then calculated as a percentage that combines its annual cash flow with its annual estimated accrued value which is then factored in with the individual return for that asset over the course of the year. The weighted returns for all these assets are then pooled together to calculate the Fund’s yield for the overall period evaluated.
The main contributing factor for the slowdown in our annualized return toward the end of 2018 was a delay in close of escrow for our largest holding in Fresno. Accruals for that asset correctly factored in the sale price at twice what we had paid for it two years prior, but since the investment had fully accrued based on our projected close date towards the end of 3Q 2018, its delayed sale created what we term “dead money” for the funds allocated for that property until it eventually sold. We did eventually close escrow on the project for the $1.8MM agreed selling price, giving a nice bump to our net returns for the month of May, coming in at 22.77%, and bringing our year-to-date annualized yield up to 9.13%.
Another contributing factor was our portfolio of projects in Ohio and Arkansas which hadn’t hit the numbers that had been projected there. In response, we stopped accrual on nearly $400,000 in funds and have been in discussions with our partner there to convert our investment into a fixed-rate return of 12.5%, letting him have any remaining upside on those projects.
We currently hold about $7 Million in assets across 9 states, including our recent move into the Georgia market with a pair of 6-month SFR flip projects in Atlanta and Decatur. These projects are showing pro forma returns well into the double digits, with initial estimates indicating we could net annualized ROI’s of 26.9% and 74.5%, respectively. We don’t expect these types of profits to be scalable, and we will use more conservative numbers on the estimated accrual for each project, but it’s nice to be able to see those types of numbers pop up on the bottom line when you run your initial analysis. And we have leads on at least two more off-market deals down the street from one of the homes that could bring us similar returns to what we are looking at with our initial move into that neighborhood.
The fund also currently holds a total of five loans with yields of between 12-15%, including one in Chicago secured by a 4-plex that we are foreclosing on, and we are in the process of adding another small loan to our portfolio, secured by a 9-plex in Stockton.
Other active projects include a SFR flip in Florida, which we acquired for $178,899, now fully-renovated and getting good activity at its List Price of $689,000. Our 20-townhome development in Phoenix is fully funded and our partner there has begun demolition of the carrier buildings in preparation for construction, and our 15-townhome development that we are partnered on in Aptos has received preliminary approval, and is expected to break ground next Spring. Comparable townhomes for the Barry Swenson development in nearby Aptos Village are supporting the projected selling prices for our townhomes, and we are excited to see our first local development project take shape over the coming year.
In other news, our initial investment on the commercial development we funded last year in Blythe, CA offered an increased return for us granting a 3-month extension, and with the infusion of an additional $250,000 of capital we upped our total investment there to $707,005 and negotiated a combined increase on its projected yield from 18.0% to 27.39% over the next 90 days. The entire balance is scheduled to be paid off by a third-party funding source with whom we have confirmed its pre-approval based on conditions that our $250,000 is helping satisfy, so that investment is lining up as very lucrative for the fund as well.
Moving into the second half of 2019 we show multiple areas of continued growth and success that continue to build on our solid foundation of the past five years. And it is a source of personal pride and achievement for us to be able to participate in the many projects we help bring to fruition, while along the way we are able to contribute to the ongoing prosperity of our growing family investors who help make all of this possible.