Irregular Property 2017 Investor Letter

Irregular Capital HQ

Irregular Property is seeking investors and landlord partners.

What’s On Deck:

• 3 Opportunities are coming up.
• 1500 St Philip St (1500P)
• 2544 Dumaine St (2544D)
• 2549 Dumaine St (BigRed)

The Team:

• Me
• 1 investing partner at 1 property
• 1 project manager
• A rolodex of contractors

The Results So Far:

• Average Rent Yield = 21.8%.
• Average Cash IRR = 14.6%.
• IRR on Renovations = 25%.
• We don’t track appreciation.
• Tables and graphs below … gray squares are not available to invest.

Our Operating Philosophy:

• Buy fixer-uppers and renovate them
• Buy stuff in either bad neighborhoods or the burbs
• Convert them to either affordable housing or, Airbnb
• Be smarter, faster, and more systematic than the competition
• Offer a quality product at a great price
• Treat tenants, staff, and partners with respect

Our Investing Philosophy:

• We invest counter-cyclically and double down when the trend turns in our favor.
• We have a minimum investment horizon of 12.5 years, target of 25 years.
• We don’t try to pick the “up and coming” neighborhood.
• Rent checks are king.
• Flipping houses is for gamblers.
• Reinvestment is better than buying.
• If we have positive free cash flow (cash flow — reinvestment) in year 1, we failed.

Our Partnership Philosophy:

• Everyone is equal.
• No GP’s and LP’s, no special shares, none of that crap.
• Everyone contributes their ideas and expertise.

Communication and Distribution of Proceeds:

• No distribution checks for the first 6 months.
• After we “figure out what we got”, we set a monthly distribution level.
• We update this level every 6 months.
• Updates occur:
  * Quarterly — just a quick email
  * Biannually — consolidated income statement
  * Annually — an annual report and a master list of every transaction

What Happens If Things Go Bad:

• We all lose money.
• We account for economic risk by running a “worst case scenario”:
  * >$15,000 cost overrun on the renovations.
  * Airbnb gets outlawed.
  * We achieve 40th percentile rents - 15%.
• All the projects still return mid-single-digit cash flow.
• But: man plans, and God laughs.
  * Sometimes the house is worse than we thought, and this costs money.
  * Sometimes we are victims of crime, and this costs money.
  * Sometimes we get psycho tenants, and this costs money.
• You should expect 1–2 years of negative returns some time in the 1st 5 years.
• As for hurricanes and such, we have insurance for that.

Pics of Past Work (before’s and after’s):

Upcoming Projects:

• Here is a dropbox folder full of pictures of the new opportunities.
• Here is a Google Spreadsheet with details on all our projects.
• If you are interested, contact me and I’ll walk you through them.