Speaking of our blog partner and advertiser CityVest, they've got a new fund out this month called the JKV Access Fund (that invests in the JKV Opportunity Fund II) and have made some special considerations for interested white coat investors.
The JKV Opportunity Fund II is an LA-based Fix and Flip Fund. The strategy is to buy distressed workforce ($350-750K) single-family homes in LA (think “bad house in good neighborhood”), renovate it over 60-90 days, and sell it 120-180 days after purchase for a profit. You've probably seen the billboards from time to time of fix and flip companies (“We'll buy your house this week for cash”). They get a low price, renovate efficiently, and sell quickly for a profit. JKV is raising $20 Million for fund II. Fund I was a $10M fund. If I'm calculating the numbers right, JKV has done this so far with about 170 homes, although one of the principals has 5,000 homes worth of experience. Their advantage is that they are fully integrated with the deal finders, contractors, and brokers all working for the same company.
Here is their track record. You'll note a particularly good 2019.
17% overall since 2017 with 29% in 2019 is obviously attractive. Their targeted return is 20% to investors after fees.
The terms of the underlying fund (JKV Opportunity Fund II) include:
$100,000, of course, is a lot of money, even for doctors who might only be investing $50-150K a year. In comes CityVest with an access fund to provide “access” to the underlying investment. There is always a value proposition to an access fund and this one is no different. The access fund provides:
- Lower minimum investment ($25K for White Coat Investors)
- Better preferred return (12% instead of 10%)
- Better promote structure (80/20 after the preferred return instead of 70/30)
Naturally, those benefits don't come free. The access fund introduces an additional level of fees:
- Technology fee of 0.75% per year (0.375% for the first year for White Coat Investors)
- Organization fee of a one-time $50,000 for the fund (1.25% of the targeted $4M raise)
- Administrative fee of $500 per investor per year
For a $25,000 investor in a $4M fund that lasts three years, those add up to about 3.2% per year. For a $50,000 investor in a $4M fund that lasts 5 years, those add up to 2% per year. So if the fund makes its targeted 20% after its fees and the access fund raises its targeted $4 Million, an investor in the access fund should expect a 16.8-18% return. Here are the published terms for the access fund (JKV Access Fund):
Now obviously everybody likes earning twice as much money as one might reasonably expect from a diversified stock investment, but as in most of investing, higher returns come with higher risk. I like the integrated nature of the company. I like the waterfall structure of the deal, especially after going through the access fund which will help make up for a significant portion of the additional expense of the access fund. But there are significant risks to be aware of here. While the past returns are good, 3 years is not a very long time. The fix and flip market can be challenging too. The buying and fixing is relatively straightforward to execute, but the tricky part comes in at the end when it is time to flip it. In times of rising property values, you get a tailwind to the process. In times of falling property values, you face a headwind. The company believes they will continue to have a tailwind due to limited workforce housing starts (because you still can't build homes in this price range from scratch in CA profitably) and a continued massive supply-demand mismatch.
I don't know if they are right or not about what the future holds in this niche market, but I think it'll be hard to provide 20% to investors if they are not. That said, even 1/3 of the targeted return seems pretty good these days. If you're interested in learning more, check out the link below: