FREQUENTLY ASKED QUESTIONS

That’s right! We strongly believe that asset management fees disalign the interests of the General Partners from the Investors. For example, a GP may decide to sell a property in order to collect a disposition fee, even if that property would be a great hold for the investors. We only profit the exact same way our investors profit – through the profits generated by the properties themselves – and we only profit after the Investors are completely repaid.

Absolutely! When we say that we only profit after the Investors are completely repaid, we mean that our focus is solely on the success of our Investors. Until our Investors have received 100% of their initial investment and any agreed-upon returns, we don’t take any profits for ourselves. This approach ensures that our interests are perfectly aligned with our Investors, as we only benefit when they do and we only profit in the same way they do – through the profitability of the properties themselves (not a separate schedule of fees).

It’s a valid question, and we’re glad you asked! We have been actively involved in real estate investing for over 12 years. Before working with any Investor capital, we built our own real estate portfolio using our personal funds. Over the years, we have established financial independence through our successful real estate ventures. We have experienced firsthand the power and profitability of the investment strategies we employ.

By utilizing the exact same strategy that has brought us financial stability and success, we are able to forego asset management fees. We consider it our responsibility to act as responsible stewards of your capital, guiding you toward financial wellness using the proven methods we have employed for our own family.

We understand that trust is crucial when it comes to investing your hard-earned money, and we hope that our track record and financial independence provide you with a great deal of comfort. Our commitment is to prioritize your interests and work diligently to maximize your returns while minimizing risk.

The reason behind an indefinite hold strategy is to prioritize long-term value creation and wealth preservation for our Investors. By avoiding a fixed timeline for property disposition, we can take advantage of optimal market conditions and hold onto properties that continue to generate strong returns.

This approach allows us to make investment decisions based on the best interests of our Investors, rather than being driven by external factors or short-term fluctuations. We aim to identify properties that have the potential to provide sustainable income and appreciate in value over time.

While an indefinite hold strategy may seem unconventional compared to traditional investment models, it aligns with our commitment to placing our Investors’ interests first and maximizing their overall returns. Ultimately, our goal is to create lasting wealth and financial stability for our Investors through a carefully crafted approach to property management and investment.

Investment metrics are calculated as fractions. For example, “cash on cash” generally means cashflow per year divided by cash invested. Because our business plan seeks to have a full return of capital as soon as possible, the denominator in investment metrics will be “$0” and therefore, infinite.

In simple terms, this means that after you get a full return of capital, you no longer have any money invested in the deal, but you retain your equity ownership and benefit from quarterly distributions from cashflow, future refi events, and the eventual sale. It’s a powerful way to build a “snowball” of wealth!

In the eyes of the IRS, real property depreciates over time. We like to think “if you built a structure, left in the desert, never turned on utilities, and never visited for 27.5 years, that structure would be worthless.” That’s how the IRS thinks about property so it allows for depreciation (ie, tax loss) each year. There are also ways to use a cost segregration study and use bonus and accelerated deprecation to take many years of depreciation during the first year of ownership – thus accelerating any potential tax advantages. Because the sale of the properties is so far in the future – 20 to 25 years- you are able to benefit from that depreciation for several decades. We work with our advisors to make the Fund as tax efficient as possible and encourage you to work with a qualified CPA to understand your personal tax situation.

We invest in Rochester, MN and Tacoma, WA. We are open to additional markets, but have none specified at this time. We invest in Rochester, MN, home of the Mayo Clinic, because of the Destination Medical Center Initiative – the largest ever public-private partnership in the state of Minnesota and the largest per capita spend on infrastructure any where in the country – seeking to grow the population of Rochester and the medical/biotech/tech offerings in Rochester to be just that – the Destination Medical Center of the world. Because of this, property values and rents continue to increase in Rochester. As of 2023, we are the single largest property management company in Southeastern Minnesota. Tacoma has similar economic drivers – after functioning largely as a blue collar industrial town for decades, Tacoma has undergone a massive revitalization, including a billion dollar Superfund clean-up by the EPA where now sits an incredibly massive real estate redevelopment. Our properties in Tacoma are benefiting not from our own value-add plan but from the massive shift happening in the community as a whole as it emerges as  thriving, vibrant, yet affordable city for people to live in the greater Seattle area.

The Blue Ocean Strategy is a business concept introduced by W. Chan Kim and Renée Mauborgne in their book “Blue Ocean Strategy: How to Create Uncontested Market Space and Make the Competition Irrelevant.” It proposes a strategic approach for organizations to seek new, uncontested market spaces rather than competing in existing, crowded marketplaces, referred to as “red oceans.”

In a red ocean, companies fiercely compete within an existing industry, often battling over a limited customer base and striving for differentiation through price, features, or other traditional means. This intense competition can lead to a zero-sum game, where one company’s gain is at the expense of another.

In contrast, a blue ocean represents a new, untapped market space or industry where competition is irrelevant or nonexistent. Blue ocean strategy encourages businesses to focus on creating and capturing new demand rather than fighting for market share with existing competitors. By exploring uncharted waters, companies can find innovative ways to deliver value to customers and differentiate themselves from the competition.

We consider both Rochester and Tacoma to be “blue oceans” and love having competitive advantage there!

Our value-add plan is a comprehensive approach to enhance the value and performance of the properties within our portfolio. In short, we optimize both physical renovations and management improvements. If you’d like the longer answer, here’s an overview of how we execute our value-add strategy:

1. Property Assessment: We begin by conducting a thorough assessment of each property to identify its strengths, weaknesses, and areas with potential for improvement. This assessment includes evaluating the physical condition, market dynamics, and tenant needs.
2. Strategic Planning: Based on the assessment, we develop a strategic plan tailored to each property’s unique characteristics and market conditions. This plan outlines specific value-add initiatives aimed at increasing the property’s attractiveness, rental income, and overall value.
3. Renovation and Upgrades: We implement targeted renovations and upgrades to improve the property’s appeal, functionality, and market competitiveness. This may involve interior and exterior enhancements, such as remodeling common areas, upgrading amenities, or modernizing units to meet current trends and tenant preferences.
4. Operational Efficiencies: We optimize operational processes and cost management to maximize efficiency and profitability. This includes streamlining property management, implementing energy-saving measures, negotiating favorable vendor contracts, and leveraging technology for better operational control.
5. Tenant Experience: We prioritize enhancing the tenant experience to attract and retain quality tenants. This involves providing excellent customer service, addressing maintenance requests promptly, and fostering a sense of community through social activities or shared spaces.
6. Marketing and Leasing Strategies: We develop targeted marketing and leasing strategies to attract qualified tenants and optimize occupancy rates. This may involve repositioning the property in the market, refining the branding and messaging, and implementing effective leasing tactics to minimize vacancy periods.
7. Ongoing Monitoring and Adaptation: We continuously monitor the performance of each property and adjust our value-add plan as needed. This allows us to adapt to evolving market conditions, tenant preferences, and industry trends, ensuring our value-add initiatives remain relevant and effective.

By implementing this value-add plan, we aim to unlock the full potential of each property, increase its cash flow and value, and ultimately generate superior returns for our Investors.

It’s important to note that interest rates are just one aspect considered in a cash-out refinance. Lenders also assess the property’s value, cash flow, borrower’s creditworthiness, and other factors. If the property has appreciated in value and the overall financial profile meets the lender’s criteria, it may still be possible to proceed with a cash-out refinance, albeit potentially with adjusted terms. For example, in 2022-2024 we have been successful in placing second mortgages to unlock equity in several properties – this allowed us to keep our low-interest rate primary mortgage, take a small second mortgage to get capital out, and have a modest blended interest rate. Regardless of market conditions or interest rates, we always have our “thinking caps” on and work closely with our lenders to optimize the business plan.

First, we’ll start by saying that as of 2023, every single piece of debt in our portfolio is fixed rate debt. We do not have a single variable interest rate loan in the entire portfolio.

We work with local and regional banks for several reasons:

1. Relationship and Expertise: Local and regional banks often have a deeper understanding of the local real estate market. They possess valuable insights into the specific dynamics, trends, and regulations that can affect property investments in the area. Building relationships with these banks allows us to tap into their expertise and benefit from their local market knowledge.
2. Flexibility and Personalized Service: Smaller banks tend to offer more flexibility in their lending practices compared to larger institutions. They are often open to customizing loan structures and terms based on our specific needs and circumstances. Additionally, working with local banks allows for a more personalized and responsive service, as we can directly communicate with decision-makers who have a vested interest in the local community.
3. Portfolio Diversification: Collaborating with multiple local and regional banks enables us to diversify our lending relationships. This reduces concentration risk by spreading our debt across different lenders, which can provide stability and mitigate potential challenges that may arise with any single bank.

Regarding full recourse debt, we understand that it may appear as a more conservative approach compared to non-recourse financing. However, there are reasons why we opt for full recourse debt in certain cases:

1. Favorable Terms: Full recourse debt can often come with more favorable terms, such as lower interest rates and higher loan-to-value ratios, compared to non-recourse loans. This can enhance the financial viability and returns of our investments.
2. Asset Control: Full recourse debt grants us greater control over the asset. It allows us to make decisions and take actions that best align with our investment strategy, without being bound by restrictions imposed by non-recourse agreements.
3. Alignment of Interests: By signing full recourse debt, we demonstrate our commitment and confidence in the investment. We are fully accountable for the loan, which aligns our interests with the lender, emphasizing our dedication to the success of the project.

It’s important to note that our decision to work with local and regional banks and choose full recourse debt is made on a case-by-case basis, considering factors such as property type, market conditions, financial considerations, and risk management strategies. We evaluate each opportunity carefully to ensure the approach aligns with our investment goals and maximizes returns for our Investors.

We are deeply vertically integrated. This means we work with our investors directly, we broker many of our down deals, we do much of our own renovations, we manage our own properties, we provide our own maintenance, we even do our own cleaning, lawn care, and snow removal! By eliminating third parties throughout the value chain as much as possible, we’re able to control quality, consistency, and most importantly, cost. Our goal is to make our buildings as profitable as possible by eliminating excess costs in all aspects of asset and property management.

We invest in value-add deals in Rochester, MN and Tacoma, WA that have a value-add opportunity such that we have multiple paths toward increasing the value of the property enough through physical renovations and management improvements such that we can get a full cash-out refi in five years or less, preferably three years, and that we believe will be a solid, profitable asset that we are proud to own for the next 20-25 years. It’s really that simple. Buy good real estate, take really good care of it, get capital out to accelerate velocity of capital, hold, and repeat. It’s the basis of all of our wealth and how we’ve done every single deal since we started investing in 2011.