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PRO FORMA: A financial statement prepared ahead of a planned transaction to forecast the expected results, including net revenues, cash flows, and taxes. They should be based on current financial statements. BLUE SKY PROJECTIONS: The most optimistic forecast for a deal possible.
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same price we paid for the entire subdi- vision. This meant that we could own the remaining lots free and clear! The syndication funded the land acqui- sition and horizontal work, and further funded itself by selling lots. As we now build homes, the sale of each phase funds the next phase. We will be able to finish out the project with no bank financing - which gives us great comfort in what appears to be an ever-changing economic environment. We are highly leveraged, but not by a bank that could foreclose on us if the market ever stalled. We can sit and wait it out if we need to, which fortu- nately doesn’t appear to be the case since the homes are selling like hot cakes. Why did the fund managers feel good about the market? • Positive data and analytics from multiple sources on job growth (The Tesla Gigafactory, Apple, Goo- gle, Amazon, Jet.com, and 13 geo- thermal clean-energy companies.) • Population growth of high-paid tech workers • Business-friendly environment with no state income tax • Proximity to the Silicon Valley • A clear need for more housing. According to Craig King of Chase
International Real Estate, “There is a great deal of pressure on the hous- ing market [in Reno] to catch up and builders are still under-building…. We are still 20,000 housing units behind what is needed.” Furthermore, Veros indicates housing supply is lower than three months, when five or six months is considered conventionally “healthy.” Lower numbers indicate a shortage (and likely higher demand) for product. How it worked: After the LLC was formed and registered with the S.E.C., the Private Placement Memorandum and Operat- ing Agreement was released to accredit- ed investors who could purchase units. "Units" are like shares in a corporation, but for a Limited Liability Company (LLC). The total raise was $16 million (320 units), with a minimum invest- ment of $50,000. If you are considering syndicating, always consult with a securities attorney first to make sure you understand S.E.C. regulations for raising private money. If you are considering investing in some- one else’s syndication, make sure the operator has an impressive track record. *The Bates Stringer Reno LLC offering is closed. •
Investors certainly can exponentially in- crease their capital’s leverage and potential returns through real estate syndications. 2018 has been a banner year for this, and 2019 holds even more promise. But it’s vitally important for the syndicator and investors to keep in mind that we are at the late stage of this real estate cycle. The massive growth we’ve seen in real estate over the past 10 years won’t likely be the same over the next 10 years. Pro forma projections need to reflect that. The Reno, Nevada, metro area has roared back to life after being floored in the hous- ing crash 10 years ago. According to Veros Real Estate Solutions’ quarterly forecast for real estate values, Reno investors may expect appreciation at a rate in excess of 9 percent through August 31, 2019. Here’s what we did with this positive outlook through our recent Real Wealth Network syndication: Bates Stringer Reno LLC* tied up 100 acres of land 15 minutes west of Reno with the intention of entitling it for residential use. Upon concluding the re- zoning process, a national builder offered to buy about two-thirds of the lots for the CASE STUDY: THE BATES STRINGER RENO LLC
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Kathy Fettke is the co-founder and co-CEO of Real Wealth Network. She may be reached at www.RealWealthNetwork.com.
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42 | think realty magazine :: december 2018
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