Homestead Affordable Fund I – Investor Presentation Video
Watch the Homestead Affordable Fund I investor presentation covering the affordable housing strategy, market selection, and financial performance.
The United States is in the midst of a housing affordability crisis. Homestead Affordable is solving the housing affordability crisis by buying slightly older homes at a discount, rehabbing these homes up to an institutional standard and making them available for lease to Housing Choice Voucher tenants.
The Homestead Affordable strategy is grounded in multiple sources of optionality that removes volatility and provides a durable path to returns for investors.
Strategy Overview
Our strategy targets a gap in institutional market activity. The typical institutional buy box is focused on homes with a minimum year built of 1980, where a more yield-driven model may not have year built constraints. Homestead is positioned just below the traditional institutional model, but still above the yield-driven strategy.
When it comes time for exit, we expect potential suitors from both above and below the quality spectrum of our portfolio, with traditional buyers interested in search of yield and yield-driven models interested in search of quality, both acting to increase demand and support value.
Market Selection
A substantial research project analyzed over 760,000 active listings nationwide to validate the strategy and optimize market selection. The market selection conclusion is that 80% of our portfolio will be built in our primary markets of Atlanta, Houston, and Dallas. A smaller concentration of secondary markets will target Phoenix and San Antonio. Optional markets include Jacksonville, Fort Myers, Inland Empire (California), and El Paso (Texas).
The final conclusion of the analysis was that there is an $800 million acquisition opportunity in our strategy over a two-year acquisition period.
Financial Performance
Our performance financials were modeled based on a conservative set of assumptions. The conclusion is that Homestead Affordable investors can expect a 14% IRR. While the Homestead Affordable strategy is grounded in optionality, we expect that this will limit volatility and result in a higher probability of outcomes to the upside.
Optionality as Risk Mitigation
- Financing: Multiple low-balance loans with modest leverage support current cash flow and provide optionality at exit, as we aren’t beholden to a single maturity date of a single large loan
- Leasing: Primary focus on Housing Choice Voucher tenants with the option to lease to market rate tenants. Financial performance is entirely driven by the downside scenario of leasing at market rental rates, leaving our base case with substantial potential for upside
- Exit: HPA-driven valuation model unique to SFR enables portfolio breakup and one-off sales if institutional bids are insufficient. Two one-year extension options provide additional flexibility
Operational Strategy
The operational strategy revolves around leverage of institutionally scaled third-party service providers. Fortune Acquisitions has been engaged to drive acquisitions. Homestead Affordable is focused on expertise in asset management with specific value add in initial rehab and initial lease up through direct relationships with local market housing authorities. Once homes are leased up, they are onboarded with HomeRiver Group, the largest third-party single-family rental property manager in the country.
Fund Structure
- Regulation D, 506(C)
- Minimum investment: $50,000
- Accredited investors only
- Five-year fund life with two one-year extension options
- Two-year acquisition period
- Expected returns: 11% to 17% IRR
- Debt capped at 70% loan-to-cost (60% LTV after rehab equity)
- 2% acquisitions fee, 1% annual asset management fee, 1% dispositions fee
- 8% preferred return, then 70/30 split (investor/manager)
All of these things have been strategically implemented to bolster the durability of the path to returns for investors.
The information in this article is for educational purposes only and does not constitute tax, legal, financial, or investment advice. Consult a qualified professional before making investment decisions.