Investors got a 41% return on this real estate investment

Everyone has heard the old adage “there’s more than one way to skin a cat”. This adage is especially true when it comes to investing in real estate. Although many people believe that rental income is the best way to make money on real estate, real estate debt can also be an equally lucrative investment. For proof, no need to look further than a recent yield street debt investment that generated a 41% return for investors.

Like most investment platforms, Yieldstreet is always looking for ways to generate wealth through different offerings. A little over a year ago, she had the opportunity to purchase two underperforming home loans tied to a mixed-use development in Brooklyn, New York. Under normal circumstances, buying a mortgage that a developer is struggling to pay is a risky proposition.

However, Yieldstreet dove deep into the numbers and saw an opportunity. There were some specific fundamentals about this deal that made it attractive. First, the loans were first mortgages, also known as “senior debts”. This means that Yieldstreet would be first ahead of other creditors when the loan was repaid or the asset seized.

Second, the fact that the mortgages were underperforming meant that Yieldstreet was able to acquire the debt at a huge discount to its value. Third, the property was in Williamsburg, Brooklyn, which is one of the hottest real estate markets in America. Finally, the original loan was a short-term mezzanine financing which provided that investors would be repaid between 15% and 17% for the 36-month holding period.

Gain

The investment sponsor, Invictus Real Estate Partners, wasted no time in acting aggressively to make this offer a winner. He initiated a foreclosure action on the subject property at the same time he purchased the debt. Because he purchased the first mortgage on the property, this action put them on title for the entire development.

During the foreclosure process, a special receiver was appointed to manage the project’s finances and oversee its cash expenditures. Meanwhile, Invictus undertook an aggressive effort to rent out the property’s vacant units, thereby increasing its revenue. Invictus negotiated a settlement with the borrower on the debt side which included a cash settlement of $104 million.

These funds were used to pay off the existing loan, but they also increased Invictus’ returns by increasing interest on debt. Another aspect of the settlement agreement required the borrower to pledge $9 million to repay Invictus’ operating costs on the property. This payment covered money that Invictus had spent out of pocket on the project, such as tenant improvements, legal fees and property taxes.

Obviously, this is an impressive range of guarantees and incentives for the project leader. Invictus obtained all of these concessions in exchange for postponing the foreclosure hearing for three months, from May 2022 to August 2022. The delay gave the borrower time to research additional options to refinance the mortgage. On July 29, the original borrower secured a new loan, which paid off existing debt, including Invictus.

By the time it was all said and done, Invictus and its investors had a net gain of 41% on a discounted loan they bought for $9.8 million and held for just a few months. This deal demonstrates that while property appreciation and annual income are great ways to build wealth, they’re not the only ones. Leveraging debt in the right place and at the right opportunity can also generate huge returns.

Highlights of today’s real estate investing news

  • The CalTier Multi-Family Portfolio Fund recently made a new investment in a portfolio of four multi-family properties comprising 185 units. The CalTier Multi-Family Portfolio Fund is one of the few non-traded real estate funds available to non-accredited investors and has a minimum investment of $500. Year-to-date, the fund has produced an annualized cash-on-cash return of 7.02%.
  • The real estate investment platform supported by Bezos Homes arrived launched a new batch of offerings to allow retail investors to buy shares of single-family rental homes with a minimum investment of $100. The platform has already financed over 150 properties with a total value of over $50 million.

Find more real estate investment news and offers on Benzinga Alternative Investments

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