We’ve invested in the acquisition and development of a 282 acre property in Jarrell, Texas, roughly 40 minutes north of downtown Austin, as the future site of a new community of 320 single-family homes. As part of this investment, we’ve entered into an agreement with a national homebuilder to provide financing for the development of the land in exchange for earning a fixed rate of return of roughly 9.5% annually.

Strategy

Fixed Income

Provide real estate backed loans or similar structured financing

  • Risk-return profile: Low to moderate
  • Expected timing / delay of returns: Typically immediately after acquisition
  • Expected source of returns: Interest income

More about our strategies

Note that this section is intended to provide a general overview of the Fixed Income 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

The goal of this investment is to produce an attractive income stream through financing the development of new housing in a growing area. The business plan shares much in common with other acquisition and construction financing that you may be familiar with if you’ve been investing with us for a while, with the primary difference being that we acquired the property, rather than providing a loan to the builder.

As the property owner, we have engaged the builder to perform the land development, which essentially means taking raw land and performing all the improvements needed before vertical construction on the homes can begin (e.g. grading and water retention, paving roads and sidewalks, running utilities, and pouring foundations). The builder has agreed to deliver this work at a fixed price, which we will fund in draws as certain milestones are completed.

In addition, we have an agreement with the builder whereby they are entitled to buy the finished lots from us at a set price. To maintain these rights, they have agreed to pay a fixed monthly payment, which functions similar to an interest payment, along with posting a non-refundable deposit of 15% of the finished lot purchase price.

The combined effect of these agreements is that we are financing the property acquisition and initial phase of development, which creates an inventory pipeline of finished lots for the builder without tying up their capital. In exchange for providing this benefit, we can earn an attractive yield on our investment with a considerable margin of safety, while yields on many other investments are at or near historic lows.

Why we invested

  • Attractive margin of safety: In addition to being owners of the land, the homebuilder has provided a deposit in the amount of 15% of the finished lot costs, which serves to further reduce our risk.

  • Experienced partner: We’re working with a nationally renowned homebuilder with over 30 years of experience of construction throughout the Sunbelt, providing homes across Atlanta, Austin, Charleston, Dallas, Houston, Naples, Orlando, Phoenix, Raleigh and San Antonio.

  • Growing local economy: Less than an hour north from downtown Austin, Jarrell is a part of the generally fast-growing central Texas region. Largely thanks to a booming tech industry, the City of Austin’s population growth has soared over the past decade, with a 22% increase from 2010 to 2019 according to the US Census, and, according to a recent study, Austin’s job market has performed the best among the 50 largest metro areas in the US during the course of the COVID-19 pandemic, in terms of the number of jobs gained and lost.

As always, if you have any questions or feedback, please visit our help center or reach out to us at investments@fundrise.com.