Last week we closed on our first acquisition of 2024: the BLVD Bella Vista, situated in the Minneapolis suburb of New Hope, MN. This twenty-four-unit property, built in 1973, comprises 15 two-bedroom units, 7 one-bedroom units, and 2 one-bedroom units, each featuring a walk-out porch. Here’s a bit about the deal…
How We Found It
Bella Vista was listed on the market, and we submitted an offer through the listing broker. Our offer was not initially accepted. However, the winning bidder's source of equity fell through, leading the opportunity to come back to us at our proposed price because of our broker relationship and our history of successfully closing deals.
The sellers, based in Rochester, Minnesota, originally listed Bella Vista as part of a three-property portfolio. We toured all three properties and submitted an offer specifically for Bella Vista because it had the best locations and the most upside. The sellers had encountered difficulties managing the property, and their in-house management team has struggled to cope with the logistical challenges posed by the distance between Rochester and Minneapolis-St. Paul (MSP).
Why We Like It
The Bella Vista opportunity enables us to enhance both physical and operational aspects. The building, mostly unchanged since the 1970s, presents a prime chance for value-add through comprehensive renovations, resulting in increased rental income for every unit. Beyond the physical upgrades, operational value can be optimized by introducing RUBS (Ratio Utility Billing System) and adopting a hands-on management approach.
One of the key reasons we are drawn to the Bella Vista opportunity is the appealing unit mix. The property has a diverse configuration, featuring 15 two-bedroom units, 7 one-bedroom units, and 2 one-bedroom units with dens. What sets this building apart is its unique three-floor design, with each level offering full patios or porches. Unlike many similar structures with a garden level that often has limited natural light, Bella Vista's thoughtful design ensures ample daylight, positively influencing rent potential. The well-thought-out unit mix, combined with ample outdoor spaces, contributes to the property's overall attractiveness and helps in reaching our desired rental income goals.
Our Business Plan
We plan to capitalize on Bella Vista's value-add opportunity by investing $13-$15k in interior upgrades, including LVP, new bathroom tile, new interior paint, stainless steel appliances, refinished cabinetry, and new countertops. Additionally, we have allocated $130k for exterior and common area improvements, such as painting and carpeting hallways and installing new lighting. Part of the $130k will be used to enhance the garage spaces which in turn will generate additional rental income.
Over a three-year timeline, we will implement RUBS to allocate utility costs among tenants. Additionally, we intend to introduce an internet program that will generate an additional $30 per unit in income. During our walkthrough, we observed that not all pet-related income is reflected in the rent roll, we plan to initiate new pet fees where applicable. Including the utility reimbursement program, we have the potential to increase the income by $242 per unit.
Our commitment to optimizing Bella Vista's financial performance will include a comprehensive cost segregation study. This analysis will allow us to identify and accelerate depreciation on specific components of the property, maximizing available tax deductions.
How We Financed It
To finance the project, we secured a 3.33% fixed-rate Freddie Mac loan with seven years of remaining term through a loan assumption from the seller. This arrangement allows us to weather interest rates while providing the flexibility to choose the opportune moment to refinance or sell the property.
In Closing
A big thank you to our investors! Your support is crucial to our success, and we truly appreciate your trust and partnership.
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