2020 Year End updateUncategorized
I don’t think there’s anyway of describing 2020 without it being an understatement.
Difficult, unprecedented, germy… there are plenty of adjectives that get us part of the way there.
From a real estate perspective, there was a lot of good, bad, and ugly.
Below are a few interesting news items from the past month, along with a recap of how 2020 looked for our business and what 2021 might have in store.
- Mass Timber construction is gaining a foothold in more markets, including Boston. The cost to build n w housing has skyrocketed, primarily as a function of increased material, labor, and regulatory costs. For example, construction costs for a new single family home were 54.8% of the total sales price in 1998. In 2019, that number rose to 62% of the total sales price. While home prices have gone up over time, the cost of construction has gone up even faster. Innovative and sustainable techniques and materials such as Mass Timber should help ease this over time.
- Multifamily developers are re-thinking the hotel-esque amenities rush and piloting more “self-serve” communities. The bet is that consumers will opt for reduced pricing / increased living space for more automated and centralized services, rather than fully staffed gyms, parking, front desk staff etc.
- As consumers grow squirmish after a long year of travel restrictions, the appeal of owning a vacation home is soaring. Platforms like Airbnb and VRBO are also helping second-home owners subsidize their purchases by facilitating short-term rental options during times of non-use.
Gladstone Capital year-end summary
It’s been quite the year for Gladstone. Below is a month by month breakdown of our highlights and stumbles:
January: closed on the second Summer St. property, a vacant five-unit residential building in Concord, NH right next door to a six-unit building we bought in 2018.
This deal was an exercise in patience. I first got word of the building being for sale in early 2019, but the off-market price was way too high. The property then went on the market, at the high price. About a year later and after the sellers had a few buyers back out, the price was reduced to a fair number.
This was my first vacant building purchase, which had its pros and cons.
Having no cash flow for a few months while we completed the unit rehabs put the pressure on, especially as COVID became scarier and scarier heading into the spring. Luckily, we were able to get all five units rehabbed and leased at market-rates by early May.
I also sold big4bound.com… a cash-flowing website I purchased and operated for the past 3 years. I wasn’t able to grow it enough, and found the return was no longer worth the headache. Once I found a buyer, I sold at a good price and funneled the proceeds into real estate activities.
March: went under contract for an 8 unit building on Hanover st in Manchester NH. The numbers looked good on the deal going in, but the looming risk of COVID was unsettling. Most of the units needed work, and the seller’s property manager did not do a great job of screening the existing tenants. I tried mitigating the risk by asking for additional work to be completed, and the vacant units filled up with tenants approved by my PM (bank was requiring at least seven units occupied by closing).
Unfortunately the sellers were also growing apprehensive, and they let the property slip out of contract to go with a cleaner backup offer without contingencies.
May: finished construction on our new house in Needham, which we bought in September 2019 and immediately started renovating. Did not forecast a global pandemic hitting right after we ripped off our dormer!
June: At long last, the modular “boxes” for the Spencer Flats condo development project with OnPoint were pieced together. It was the coolest day of construction I’ve ever seen – basically expensive adult legos.
August: Started my MBA part-time at Babson
September: Sold our Revere single family rental. All in all, probably not a great buy. We made decent money from this one, but it was a result of buying at a good price and riding the market up. We closed in December of 2018 with a 6 month lease back to the seller. We did minimum work to the house – mostly cleaning and painting, before leasing it out. The goal was to hold off on any major renovations until I had a better plan and firmed up quotes / numbers.
By the time the tenant was ready to move out and her lease was up, we were in full blown lockdown, my go-to contractor had moved up to Maine, and I was living too far away from the property to manage any significant work on my own. Luckily, the single family market was booming, so by mid-summer we made a plan to list the property and help the tenant find a new place to live. We received a great offer for the house, and closed without any issues. This one ended up working out, mostly due to luck, but it was not a great return on headache.
October: Sold our Revere duplex. We bought this building vacant in 2018 and completed a ~75% gut reno on both units, including new mechanicals and updated / separate electric. This was a rental for the past two years with excellent tenants. This year was a great selling opportunity, so we took advantage of the market and sold.
Also in October, the Spencer Flats model units officially went on the market, and the team is working hard to drive potential buyers to our open house while finishing the punch list and final inspections for the remaining units. The fall has been challenging for the Boston condo market. Many potential buyers are content to stay in their apartments or with family, as rents remain depressed and COVID reduces demand for city access and amenities.
November: my first crowd-funded investment exited. I invested as a Limited Partner into a value-add apartment community project in greater Columbus, Ohio through the Realty Shares platform (which went under and sold to iintoo). It was interesting to see how larger deal sponsors purchase, operate, and exit from these types of investments. The investment also earned a 21% annualized return – it’s always nice to actually get paid to learn.
December: officially went under contract on our first short-term rental, a small cabin near North Conway, NH. I will hold off on giving any more details to mitigate any jinxing risk, but this is a project that Jill is excited to take on and run with.
What I’m looking forward to in 2021
Household expansion: Jillian and I are excited to welcome baby Evans to the world this Spring!
Writing more: I’ve really enjoyed sharing my thoughts with you all this year, and am amazingly appreciative of all of the kinds notes, thoughts, and feedback you’ve sent. Next year, I’m hoping to expand my writing to longer format blog posts as well. If there’s anything specific you’d like me to research and write about, please let me know!
Small Business investing: just a teaser here for now, but I’m looking to invest in local home services businesses. We have something in the pipeline, and will hopefully be able to share more on this coming next year.
I hope you have an amazing holiday season and joyful end to 2020!BACK