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Profit & Loss
Revenue grew 3.9% following last year's double digit increase. We had two turnovers in Las Vegas, which while we filled quickly, didn't lead to a huge increase in rents as rents have mostly stabilized for the dramatic increase of the immediate post Covid years. Repair expenses were higher mostly in the two properties in which we had a turnover. We continued to make capital improvements to enhance the long term value of our properties. At Homestead we installed tile floor to replace the wood floor which was getting damaged from the water from the pool. We also continued to replace appliances that were past their useful depreciated life. We continue the strategy of keeping good tenants below market rent.
For the Bay Area we see a continuing of the COOL market from last year. We disagree with the WARM market assessment in our areas. In Oakland, we see the headwinds of more inventory coming into the market and also a general outflow of people. We are finding longer times to fill vacancies and a lowering of rents. The trend line graph does depict a reduction from December 2024 to January 2025 and while that might be seasonal the downward trend is we believe more reflective of market conditions. Within Clarameda we have two properties both of which have been occupied by tenants using Section 8. One of the tenants stopped using Section 8 and is paying rent on her own. There is some indication that tenant may leave the area in which case we will have to find another tenant. We are going to wait until the summer to pass along rent increases given our assessment of the market.
OAKLAND MARKET DATA - Zillow Rentals
OAKLAND MARKET DATA - Zillow Rentals
Here is what we said last year: For the Las Vegas market we see a stable market which is a downturn from the very strong market of the last few years. Some of that is the correction from the post pandemic boom when travel and tourism rebounded as people were tired of being pent up. Going forward, the Super Bowl is in Vegas and the Oakland As will be playing there soon so we are bullish about the growth prospects in its main travel and tourism industries. Seems like an eternity that the 49ers were in the Super Bowl. In some ways this is reflective of our assessment of the Bay Area further reinforced by the As having said farewell. The market seems to have stabilized with a muted uptick as a result of the AI boom fueling investment in the the tech sector. In Las Vegas, we had a couple of turnovers in the summer and we were able to fill both quickly. We didn't mark up rents that much in either property (2% and 5.5%) as these tenants were only in place for a few years and market hadn't moved up as much. Unfortunately one of those tenants broke her lease early and we were able to secure two months compensation. This is in a house with a pool and we are having a harder time filling this vacancy in the winter. We will hopefully find someone with better long term prospects as unfortunately this house has had the worst performance of all the properties we have owned due to a combination of more turnovers from tenants who were hard on the property.
LAS VEGAS MARKET DATA - Zillow Rentals
LAS VEGAS MARKET DATA - Zillow Rentals
Among the highlights of the work we did this year was to install a new tile floor at the Homestead property on the ground floor. The problem was that water from the pool was making its way into the house, most likely from tenants not drying their feet. We decided to bite the bullet and go with tile to eliminate this issue. We also re-painted the house a classic white to give it a fresher modern feel. We also added new appliances at Elderberry (fridge and new Water Heater), Single Tree (fridge and dishwasher), Cove Landing (dishwasher), and Homestead (dryer). We continued with Costco as our preferred vendor for appliances.
Homestead: Living Room, New tile and paint
Homestead: Dining Room, New tile and paint
Homestead: Kitchen, New tile and paint
Interest Expense
Interest expense went down as the Company continued using excess cash flow to pay down debt from Partners. We will discuss further in the Balance Sheet section below.
Other Items
No other items had any unusual activity as there were some pre-paid expenses that evened out despite the year to year flucuations.
Overall Profitability
We had a very good year, almost in line with last years record profit. While repairs and maintenance expense was higher we lowered interest expense and increased rents somewhat - some of the increase was due to pre-paid / delayed rent from December to January.
Going forward 2025 has some headwinds. Our Homestead property is vacant going into the New Year as a reult of the tenant who abandoned the lease early. We see some room for increases our Las Vegas properties on long term tenants however we will wait about 6 months to try to raise prices in Oakland. We will be cautious in raising rents as we would rather keep the current tenants in place. So unlike years past we are not looking for tenant turnover.
With the return of capital back to Partners almost in the rear view window we will issue a Special Distribution to offset tax implications for Partners and Managers. Look for that along with your K1s - we will withhold amount needed for CA taxes for out of state members.
Balance Sheet (Dec 31, 2024)
Assets
Cash $ 64,205
Other Current Assets $ 3,155
Book Value of Buildings $447,315
Book Value of Land $156,700
Other LT Assets $ 21,838
Total Assets $693,213
Liabilities
Current Liabilities $4,434
Accounts Payable
Security Deposits $18,424
Partner Debt Tranche 1 $0
Partner Debt Tranche 2 $0
Partner Debt Tranche 3 $30,000
Partner Debt Tranche 4 $50,000
FOA - 74th $320,882
FOA - 75th $304,509
Total Liabilities $726,351
Equity
Partner Equity $0
Less Change in Cost Basis -33,138
Total Liabilities and Equity: $693,213
Market Balance Sheet (Dec 31, 2024)
Assets
Cash $ 64,205
Other Current Assets $ 3,155
Market Value of Properties $3,251,800
Zillow 2/1/2024
Total Assets $3,319,160
Liabilities
Current Liabilities $4,434
Accounts Payable
Security Deposits $18,424
Partner Debt Tranche 1 $0
Partner Debt Tranche 2 $0
Partner Debt Tranche 3 $30,000
Partner Debt Tranche 4 $50,000
FOA - 74th $320,882
FOA - 75th $304,509
Total Liabilities $726,351
Equity
Partner Equity $0
Unrealized Gain $2,592,809
Total Liabilities and Equity: $3,319,160
Zillow estimates the portfolio to be about flat to last year at about $3.251M. The mortgage market has stayed relatively high with rates at about 7%. Low inventory and an otherwise inflationary environment in rents had offset the negative effects of rising interest rates. We are generally optimistic that the change in Administration will be a net positive for the economy. We especially like the proposal to eliminate taxes on tips which will be a positive for the Vegas market. Overall, we believe that this prospective rise in rents supports the asset prices for our properties, so we continue to want to hold, even in a declining / flat asset price environment. One idea going forward would be to take advantage of increasing density laws in California to make value-add additions in our existing properties.
From a capitalization standpoint we took down Partner debt by about $48K last year, with another $30K early this year.. With much gratitude to Partners who supplied this Debt when asked, the Company returned this cash from the strong cash flow from Operations which we discussed above. Our goal this year is to continue returning Partner Debt while maintaining a healthy cash balance of about $50,000. With this lower Debt amount outstanding we shall see a reduction in Interest Expense going forward. Once the Partner Debt is exhausted the Company will increase Special Distributions and/or make Value Add investments.
Going Forward
As in prior years we have the question of when to exit the Fund. As a recap we started the Fund in late 2008. Several years ago the Fund returned all the intial Capital to the Partners when we secured a 30 year mortage on two of the properties at a 4% rate. This turned out to be great timing and certainly that mortgage which is a liability on the Balance Sheet looks attractive with current rates. We did pay quite a bit in upfront fees, which is a sunk cost, the longer we hold the more we amortize those fees. Not that this factors into any decison we make. As stated, upon taking out this loan we were able to return all Partner Capital which also ended the Distributions on Partner Capital.
We also wanted to recap the other Capital move that we made which was the Company buying back the shares of one Partner at face value prior to the re-financing. To enable this the Company used cash in its account and borrowed 60% of that amount from Partners under its Tranche 3 round. The Company paid 6.5% interest for that round. There were two benefits that accrued to Partners. Every Partner got an increase in their share of the Company. To quantify what this means in dollar terms -let's use the smallest Partner Share $50,000. You can multipy as needed for your share. This share grew from 3.03% of the Companies Profit to 3.448%. To convert that into dollars, since we paid back the $100,000 that is a $3,448 increase from that alone. Then if we assume a $2M Unrealized gain that would be about an $8,300 increase. Of course this is based on an Unrealized gain which is not certain and can vary over time. So we can estimate about an $11K gain for every $50,000 Capital contribution compared to not having made this transaction. The other benefit accrued to Partners who made the loans and received interest on that in the short term.
For the past several years we have been paying back the loans for this Share buyback and also we have paid back all of the original Tranche 1 and 2 loans mostly out of the Company's cash flow. These Capital decisions have led the Company to not pay out the Profit from Operations and instead pay back Partner loans. We can clearly see the end of this use of cash as we currently (January 23, 2025) have $50,000 left in Partner debt from a high water mark of $220,000. With that in mind the Company will be issuing a small Distribution of Profits to alleviate part of the tax hit on profit. Look for that in the mail with the K1s. We should expect to see this Distribution increase over the next few years if nothing else changes as we do not want to see the cash balance exceed what would be prudently needed to handle any predictable adverse issues around vacancies or repairs.
As always feel free to reach out to us if you an opinion of whether or not to start divesting the Fund of its Properties and Realize the gains - the decision is of course that of the Manager.
Look for the K1s around March where these DRAFT results will be finalized...
As always, thanks to all Partners for your support and continued trust in management.
With gratitude,
Biren Talati
Managing Member
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