In late 2017, we purchased three older, neglected single-family homes in the Cabbagetown neighborhood southeast of downtown Atlanta. With its relative affordability, artistic character, and proximity to downtown, Cabbagetown meets our criteria of an emerging urban neighborhood with high growth potential. We bought these first three homes to evaluate the potential for a larger home renovation strategy in the neighborhood.
As 2018 progressed, it became increasingly clear that the pool of buyers for renovated homes was not as deep as we initially thought. We decided not to pursue the strategy any further, and to sell the three homes without putting additional work into them. At the end of February, we sold the last home just slightly above our initial purchase price, but still achieved a weighted average return of roughly 15.1% across the three homes.
| Approximate cost basis | Approximate profit | Approximate ROI¹ | |
|---|---|---|---|
| 653 Wylie St SE | $269,400 | $78,300 | 28.0% |
| 686 Kirkwood Ave SE | $272,103 | $60,966 | 21.4% |
| 152 Berean Ave SE | $331,500 | $1,400 | 0.0% |
| $873,003 | $140,666 | 15.1% |
1. Approximate ROI percentages are adjusted downward to account for asset management fees, which are assessed at the fund level.
While we remain optimistic about the area’s prospects for future growth, our ultimate aim when deploying capital into real estate is achieving consistently strong returns for you, the investor. To earn an attractive return on single-family renovations, keeping costs down is a must. One of the most effective ways to do that is at scale — buying materials in bulk and working with the same contractors across many projects, enabling us to negotiate better rates. We did not see a path to get to that scale in Cabbagetown, so we wound down the strategy to deploy your capital more effectively elsewhere.
This experience is an important reminder about the imperfect nature of information when investing in private real estate. Even a well-reasoned and underwritten strategy can have unforeseen problems, which is why a diversified portfolio is such an important hedge against the unexpected.
Investor FAQ: How does an individual project impact your portfolio?
In aggregate, the three investments we made in Cabbagetown generated roughly $140,000 in returns for the National eFund. The sale of the first two contributed to the NAV increase from $10.00 to $10.12 at the end of 2018. Since we effectively broke even on the sale of the third home, we do not expect it to contribute to the next NAV update at the end of June. More importantly, the roughly $1 million of capital (principal plus returns) has been freed up for deployment into other strategies.
We look forward to providing ongoing updates about the progress of our single-family rental and renovation strategies. As always, please don’t hesitate to reach out to investments@fundrise.com with any questions or feedback.
