11/30/2018 | Case Study
Full Renovation of 1541-1571 Xenia Street
Investment case study of 12 unit property in North Aurora.
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It’s instructive to trace investment history, especially as the investment evolves through property exchanges. A notable advantage when investing in real estate is the ability to preserve tax assets when exchanging like-for-like ownership of one property for that of another (known as a 1031 Exchange). When done successfully, a 1031 Exchange can be a truly powerful method of tax efficiently compounding capital gains.
Through a series of transactions beginning in 2014, DRG Investment Group, LLC began an investment series that had both a great outcome and truly opportunistic timing for reinvestment.
To begin, an initial purchase of two properties totaling 24 units, both purchased in a package deal from the same seller in Q3 2014, was made for a total acquisition price of $1.38m.
After implementing a process of properly managing these properties, pushing rents to market levels, mild value-add through cosmetic upgrades, and basic property beautification, these properties were sold in Q1 2016 for $1.8m.
After paying off all related debt, a sizable investment gain had been earned on original invested equity. Through a 1031 Exchange (and thus postponing taxes on the investment gain), three subsequent properties were acquired with the net sale proceeds in the 2nd and 3rd quarter of 2016:
The original 24 units had successfully been exchanged into 51 comparable units across three new properties, with only a modest additional equity contribution required to effectuate the transaction.
A further iteration has since seen two of the three properties monetized: After substantial renovations, 1541-1571 Xenia Street was sold for $1.95m in Q4 2017, and 1942 Oswego Street was sold in Q2 2018 for $1.0m. 1960 Dallas Street currently remains owned and is valued at approximately $3.9m.
Through all the various transactions and a total equity investment of approximately $560k, the strategic exchanges, selective renovations and capital appreciation culminated in a pre-tax equity value of approximately ~5.8x the actual equity contribution.
No doubt the market was kind during this period as property prices increased at a rapid rate irrespective of acquisition strategy. Regardless, through the opportunistic exchange of a fully-valued asset into those that are purchased at below-market levels while preserving valuable deferred tax assets, DRG professionals have developed an exceptional track record of finding and adding value for investors.