Imagine earning six figures a year living in tech-central San Francisco where opportunities are plentiful—except when it comes to homeownership. While this may seem like a far-fetched hypothetical, it’s not only a reality, but increasingly the norm. In the Bay Area, the median home price is $895,000 and a six-figure salary can actually qualify as “low income”. San Francisco is not the only city facing these circumstances. More and more major U.S. cities are encountering a disparity of housing affordability where demand is outpacing supply and home prices are soaring. If you are fortunate enough to find a home in your price range, chances are that you’re one of the hundreds at the open house, and if you’re not prepared to make an immediate offer and withstand a bidding war, you’re likely to miss out.
Due to supply constraints and a growing preference to live in walkable urban areas, the housing market is in a dire state of unaffordability for the majority of homebuyers. Something needs to be done—which is why we’ve created a new investment model to change the way housing development works. Through a direct tech-enabled model, we can cut costs to boost potential investment returns and help young homebuyers afford their first homes.
The La Vista Home
The eFund is a new tax-efficient investment model that is changing the way people invest in and buy homes. It gives everyday investors access to a diversified portfolio of for-sale housing based in high-growth neighborhoods of major U.S. metro areas. Investors in the eFund are expected to have the opportunity to purchase homes first at a more affordable price point and earn potentially better returns due to the cost savings.
Following a value investing strategy, Fundrise purchases homes at low prices in order to maximize potential value and sell homes at an affordable price point for end buyers. This might mean putting in the extra effort to purchase a home through probate, or simply buying a home in need of significant renovations. Once eFund homes are fully renovated, Fundrise expects to be able to offer competitive prices for prospective homebuyers in high-growth neighborhoods of major cities while generating potentially high profits for eFund investors.
The Future of Homebuying and Investing Through the eFund
For our first eFund acquisition, we’re performing a total gut home renovation to take the La Vista home from trash heap to high-end. Despite the circumstances of this 1917 two bedroom, one bathroom 700-square-foot home, it holds enormous potential in large part due to its location. Once renovated, the La Vista home may offer double-digit returns for investors and a prime homeownership opportunity in a market with a severe shortage of new single-family homes.
The La Vista home can earn up to a 22% profit margin if the expected sales price of $715,000 is achieved. At $1,025 per square foot, this price is in line with recent sales of other similar homes in the neighborhood, and continued growth in the neighborhood supports this price point.
Considerations on Choosing this Property
When performing due diligence on a property like La Vista home, the Fundrise real estate team considers hundreds of data points. Where other developers saw only mounds of trash, our underwriting process revealed investment potential with an estimated 22% profit. Good curb appeal can add to the value of a house, however, poor curb appeal can likewise significantly discount a home’s sale price, creating an investment opportunity for experienced developers, like Fundrise. Underneath the tattered veneer, we believe the property is rife with latent potential for both homebuyers and investors.
The La Vista home holds many distinguishing features that made it worthy of investment:
- Attractive location in a high-demand, appreciating neighborhood: The La Vista home is situated in the third-densest neighborhood of Los Angeles. Density creates physical barriers to construction, and as a result, home prices in this area have increased by more than 13% year over year. Other homes in this neighborhood have been recently sold in 30 days on average, far faster than the greater Los Angeles average of 42 days. The La Vista home fits with the high and still-rising demand for homes in this area.
- Well-suited for the first-time homebuyer: As a two bedroom, one bathroom single-family home around 700 square feet, the La Vista home is an ideal starter home. Its location also offers a range of amenities well-suited for young first-time homebuyers. Because it’s in a high-density neighborhood, the home is within three miles of multiple grocery stores, public and private schools, the hip Melrose strip of restaurants, boutique shops and Paramount studios. And, with its central location within the city in Hancock Park, it is within commuting distance of other major areas in Los Angeles via freeways and metro lines. As of 2016, only 36% of Millennials in Los Angeles owned a home, even though they make up the largest demographic in the city. As this group ages into the homebuying market, opportunities like the La Vista home offer an increasingly-rare chance at more affordable homeownership.
- Private sanctuary appeal: The La Vista home is a quiet refuge in an otherwise bustling city, which sets it apart from other homes in the area. Although the home is in a relatively densely inhabited neighborhood, it is located on a small and secluded street, giving homeowners sanctuary from the hubbub of the nearby major areas. Unlike other homes on the block, the La Vista home is gated and hedged with bushes for added privacy.
In the next post we’ll walk you through the scope of the work of the renovation and how we intend to take this diamond out of the rough.
Investing in the eFund
You can invest in the La Vista home and other for-sale assets through the Los Angeles eFund, Washington DC eFund and the National eFund. Fundrise’s technology-enabled direct-to-investor model operates more cost-effectively than traditional options, offering the potential for both lower home prices for prospective homebuyers and higher yields for investors.