We’ve invested in the acquisition and development of a 151 acre property in Davenport, Florida, roughly 45 minutes southwest of downtown Orlando, as the future site of a new community of 231 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 8.5% annually.

In addition, as a follow up to this investment, we will have the option to purchase additional properties in the same general location in two future development phases, for the potential construction of 237 and 193 additional single-family homes, respectively.

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 10% 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.

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 10% of the finished lot costs, which serves to further reduce our risk.

  • Fast-growing area: According to the U.S. Census, the Orlando MSA grew 22.2% from 2010 to 2019, about three times more than the national average for metropolitan areas, putting the region in the top ten for raw population growth for the period and 12th for percent change. Some counts have Orlando adding as many as 1,000 new residents per week, attracting newcomers who are highly educated and hailing from diverse backgrounds.

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