If you own a mutual fund, ETF, or other equity conglomerate, you may know that you receive periodic updates, perhaps quarterly, perhaps annually, concerning the activity of the fund, individual securities in which it has invested or divested since the last update, and a statement of NAV (net asset valuation) to be used for tax purposes.
The type of investing we do, called real estate syndication, is similar in some ways but different in others. It does involve aggregating capital from a group of investors and making purchases that very few single investors could accomplish individually. And it’s all about real, tangible assets; there are no pie-in-the-sky fake assets (digital currency, snake oil, Kool aid, credit default swaps, shorting GameStop) with which to become bogged down.
This investor update concerns a commercial/residential project in Auburn, Michigan – a city at the heart of what’s called the “Great Lakes Bay Region”. Auburn presents a great development opportunity in that it’s close to everything this area has to offer – businesses big and small, an airport, shopping, recreation, education – yet maintains a quaint small-town feel.
We are fortunate to have been able to acquire and aggregate various parcels of raw land into a larger parcel on which some great things are planned.
I thought this quarterly update would be appropriate for a blog post because it highlights some of the challenges we’ve experienced as well as some of the serendipitous windfalls that we’ve been fortunate enough to accumulate.
Names have been omitted to protect the innocent. Dollar amounts aren’t discussed because that’s likely an SEC violation. Nonetheless, we hope this update provides a template upon which your real estate investing interest may be cultivated and will grow.
Please reach out with any questions.
Q2 2021 Investor Update
To our Investors,
2020 was a challenging year in many ways for us all, and while the Auburn, Michigan project hasn’t moved backward, we didn’t manage to break ground in 2020.
That’s a good thing in retrospect for many reasons, all of which will be delineated below. The pervasive theme is, “Good things come to those who wait.”
The extraordinary increase in cost of lumber and other building materials, coupled with the supply chain dynamics beyond anyone’s control, would have made for a frustrating start had we decided to break ground in 2020.
Had we been overzealous about starting this project, the long term returns would have suffered – not only due to increased construction costs, but also due to anticipated poor absorption rate during and after the pandemic.
Here are the noteworthy items of interest that have occurred since our last update:
- The land contract on the first parcel acquisition was paid in full and satisfied.
- The second parcel was purchased from Chemical Bank for cash.
- The medical office that is sharing the development (and an appropriate portion of site and infrastructure costs) indicated that it seeks to occupy its new facility by August 2023. Working backward, that means design work will need to commence by fall 2021 and ground broken in spring/summer 2022.
We have heard from another health care organization interested in placing their second location within this development. While this will reduce the footprint within which to build residential housing, it will also produce an influx of cash from 1) the portion of land they will purchase and 2) the pro-rata share of infrastructure costs they will experience.
The limit on the residential development will now be between 14-22 units depending on unit type and density. However, the site costs per unit will be much lower and the cash flow and profit per unit will be maximized.
- We currently have surveying and civil engineering performing topographical work and providing layout options as well as generating utility plans. The second medical facility, a therapy center, will be the first to break ground (yet in 2021), and the layout of the entire development, commercial buildings, parking, residential structures, utilities, streets/sidewalk/curb/gutter, will need to be determined and approved/permitted up front.
This is probably the most exciting update that we’ve had the privilege to write and send to you since inception of this project. Later this year, we will provide you with a pro forma anticipated return for phase 2 of this project in cash-on-cash numbers. It is a very exciting project and we passionately believe it will be a gem in the community of Auburn, Michigan!
Please reach out to us personally if you have any questions or concerns about this project or any of our other projects.
Lee and Matt
Cutting Edge Investments, Inc.
As you can see, real estate investing differs from buying and selling shares of mutual funds and ETFs. There are real challenges that demand real solutions. At the same time, there are excellent opportunities that present themselves to those that have prepared for them.
Although the current phase of our development project is closed to new investors, please reach out if you have any interest in learning about future investment opportunities. Unlike the securities market, real estate pays you in 5 different ways.
Until next time,
Dr. Lee Newton
P.S. Remember – I give ideas, not advice.
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