We’ve invested roughly $1.3 million to acquire five brand new single-family homes within the Tortosa community of Maricopa, Arizona, with plans to acquire a total of 70 rental homes in the community over roughly the next year and a half. Maricopa is part of the greater Phoenix metropolitan area, about an hour south of downtown.
At a strategic level, this investment fits within our affordably-priced Sunbelt apartment / rental housing thesis. From millennials to retirees, a broad group of Americans has been taking part in a migration from northern to southern states over the past decade, driving continued demand for well-priced, well-located real estate, and supporting steady returns for disciplined investors.
As we reiterated in our third quarter performance update for investors, we believe that this long-term trend has only been further accelerated by the pandemic. In an economy where remote work is becoming the norm for more and more people, we expect that an increasing share of the population won’t need to live in expensive gateway cities and will instead seek out locations that offer lower living costs and more agreeable climates.
This acquisition was made by a joint venture between two Fundrise sponsored funds, the Fundrise Flagship Fund, which invested roughly $1,207,000 and the Growth eREIT VII, which invested $134,000.
Strategy
Value Add
Acquire real estate that needs improvements and / or lease-up
- Risk-return profile: Moderate to high
- Expected timing / delay of returns: Several months to a year
- Expected source of returns: Growth with some income
Note that this section is intended to provide a general overview of the Value Add strategy for educational purposes only, and is not meant to be representative of the specific details of any individual investment. All investments involve risk and there are no guarantees of any returns.
Business plan
By acquiring the brand-new (vacant) homes in batches and leasing them up ourselves to assemble a stabilized community, we intend to get a better price, and therefore a better potential return, than if we had purchased a “finished product.”
Our initial investment at Tortosa is an all-cash purchase of five finished homes within the community, which is still under construction. Our intent is to acquire and lease up additional batches of roughly eight homes per month as they deliver, eventually taking ownership of 70 homes within the community. This phased buying structure should result in much more efficient deployment of investors’ capital, as opposed to holding cash for several months while waiting for an entire community to be built, and then acquiring it all at once.
Our intent with this and other investments in single-family rental home communities is to be a long-term investor, building a scaled portfolio that generates consistent rental income, while at the same time being positioned to capture what we believe will be outsized price appreciation thanks to a confluence of demographic factors driving demand across the Sunbelt. While the properties of course look different than multifamily apartments, the underlying investment thesis is ultimately very similar.
We have engaged a leading property manager of single-family rental communities across the US.
We expect the aggregate purchase price of all 70 homes in the completed community will be roughly $19.3 million. While we acquired the homes in an all-cash transaction, we intend to use portfolio-level financing, with the aim of increasing expected returns and freeing up cash to deploy elsewhere.
Why we invested
- Growing local economy: According to the 2020 US Census, among all large cities in the country, Phoenix grew the fastest over the past decade, with a growth rate of 11.2%. That population boom has helped fuel rent growth for single family rental properties in particular, as Phoenix saw rents for single family rental homes increase by 14% year-over-year in 2021 according to a study by CoreLogic — the most of any American metropolitan area observed.
- Social distancing-friendly: We believe the privacy provided by the community’s fully detached and individual homes will be particularly attractive to renters seeking an additional level of social distancing, or who simply need more living space as norms around work and school shift.
- Institutional-quality asset: This deal is structured so as to allow us to acquire tranches of homes in regular batches throughout the year, directly from a nationally recognized homebuilder. Once our investment in the 70 homes is complete, we will have added an institutional-quality asset of ready-to-rent homes to our portfolio, consisting entirely of brand-new construction.
As always, if you have any questions or feedback, please visit our help center or reach out to us at investments@fundrise.com.
Additional Information: An investor in the Fundrise Real Estate Interval Fund (the “Flagship Fund”) should consider the investment objectives, risks, and charges and expenses of the Flagship Fund carefully before investing. The Flagship Fund’s prospectus contains this and other information about the Flagship Fund and may be obtained here. Investors should read the prospectus carefully before investing.
