Overview
Turnstone is seeking Investment Partners interested in taking advantage of one of the best markets for real estate appreciation in the last 30 years. The State of California and Los Angeles County in particular has seen a rapid reduction in property values since first quarter of 2005. This rapid reduction in property values, together with an unprecedented Federal action to support credit markets, has created a once in a lifetime opportunity for equity accumulation in the one to four unit residential real estate market. We believe there exists’ a window of opportunity twelve (12) to twenty four (24) months long to realize substantial return on investment through the accumulation of real estate and its subsequent appreciation. Turnstone is structuring investment with a minimum investment of $200,000.00 up to 10 million dollars and a projected involvement of 30 to 67 months. Returns to Investors are projected between eighteen percent (18%) to thirty seven percent (37%) annualized. Additionally, Investors enjoy a preferred or protected return of ten percent (10%). Turnstone will form an LLC with the investor for the purpose locating, purchasing, improving, managing and ultimately selling one to four unit residential properties located in Los Angeles and Orange Counties.
Marketplace
Why now? No one can accurately determine when a declining market hits “the bottom” until after it has already began its climb back up. What we do know for sure is that certain markets have declined by as much as forty-eight percent (48%) from their highs in 2005 and these declines have created an environment of superior opportunity for the creation of wealth over the next few years. At Turnstone we are not in the business of making market guesses, but rather, sound real estate investments. If a property matches Turnstone’s eligibility criteria and provides positive cash flow, it remains a good investment regardless of possible market fluctuation.
During the aforementioned twelve (12) to twenty four (24) month window of opportunity, it is forecasted that there will continue to be an oversupply of inventory created by a constant flow of foreclosed properties continuing to hit the market. The current down turn is different from those in the past for several reasons and Turnstone analysis supports a hyper price recovery when compared to previous historical downturns.
First, the Federal Reserve Board and Central Banks have reacted with an un-precedent injection of cash into US credit markets and, the US Congress approved a stimulus package with tax rebates followed by the “700 Billion” bail out and increased loan limits for Fannie Mae and Freddie Mac. Such drastic moves by governmental agencies will have an effect on the depth and length of the current down turn. Historically, in the State of California, the loan limits of Fannie Mae and Freddie Mac have followed the median home price. For the first time in the agency’s history, their loan limits exceed the median home price. What this means is that there is an abundant supply of available loan funds chasing the reducing home values. In simple terms, there is more supply of mortgage money than there are mortgages, for the first time in California’s history. Turnstone believes that this phenomenon will help to promote a hyper-recovery in home values.
Second, is the speed at which the market declined in California. Since third quarter 2005, the median home price in certain California sub-markets has declined by almost forty eight (48%) percent. This means that a home valued in 2005 at $650,000 is only worth $312,000 today. Abnormal movement in the market is almost always followed by abnormal correction. The term Economists use is “regression to the means”. At Turnstone, we use a simple metaphor to describe the term. A foot print in sand always fills up over time. The current decline in California real estate prices is merely a footprint in the sand that will be refilled.
Thirdly, and possibly the most compelling reason why Turnstone is forecasting a rapid recovery in the market is the plethora of activity that already exists, behind the scenes. We are not alone in our excitement over the possibilities presented in this market. Numerous large land purchases have recently been completed in the Inland Empire. Vulture Funds, banks and private investment firms are purchasing large blocks of REO properties (Real Estate Owned by lenders) for renovation and sale. While the press is still pre-occupied with the onslaught of pending foreclosures and the rapid decline in home prices, institutional “bottom feeders” are already mobilized into action. The activities of these institutions will not cause a turn-around in prices, but will have a profound affect in price stabilization.
It is these three factors in combination that support our contention that NOW, is the right time to enter the market. As Warren Buffet has long said, “Be fearful when others are greedy and greedy when others are fearful.”
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Projects
Part of the appeal of investing with Turnstone, apart from excellent projected returns, is that by forging a partnership with Turnstone, you are benefiting from 15 years of concentrated local knowledge and relationships in the target investment areas. While an occasional project might come from our regular perusal of the Multiple Listing Service (MLS), most of our transactions are the result of our network of REO (real estate owned by banks) specialists. These “property locators” and Realtors are aligned with bank asset managers and are often notified in advance of significant price reductions on REO inventory. Through these contacts, Turnstone is able to secure properties at significantly “below current market value”. In addition to REO and foreclosure inventories, Turnstone purchases properties at the Trustee Sales at the County Recorder. Turnstone’s ability to obtain these highly discounted properties has two major benefits: (a) first, it provides an increased opportunity to take advantage of the “fast flip” option of the investment and (b) second, it builds in a “buffer” against the possibility of further decline in real estate value.
Turnstone locates investment opportunities in growing working class sub-markets in Los Angeles County, where the company and its principals have invested and managed tenants, successfully, for the last 11 years. Each property will pass a rigorous due-diligence process which will include location assessment, repair analysis, marketability, rental data, current valuation and sales price history. Those properties selected for investment must be eligible for the exit strategy suited to the Investors goals and objectives.
The investment property will be purchased, renovated if necessary, rented and sold according to the investment plan. Turnstone will handle all aspects of the transaction including, property location, evaluation, renovation, management and marketing for sale.
The properties will be purchased for cash by the LLC from Investor Capital. The amount of the investment will be an amount equal to the sum total of the purchase price, customary closing costs, rehab funds, legal expenses, finder’s fees (if applicable), developer fee ($5,000.00) and nominal office allocation expense for each project. Once the property rehab is complete, Developer will apply for a refinance loan at 65% of “costs”. All net proceeds of the refinance loan will be returned to the LLC at which time the Investor may reduce their initial Capital Investment in the LLC or invest the funds into a similar project. The Investor’s Capital Investment is secured by three methods: First, the Operating Agreement of the LLC, which is a legally binding agreement that governs all uses of capital and distribution. Second, a portion of Investor’s Capital Investment is recorded against the property in a First Trust Deed position. Third, Investor’s Capital Investment is secured by the membership interests in the LLC through a secured loan agreement. The combination of these three types of security put the Investor in a position of safety and control, not found similar investments.
The “Sub-prime meltdown” and resulting drop in Real Estate prices crossed the entire residential market, from small single family homes and condos to larger three and four unit apartments. As result, Turnstone has the ability to be discriminating in the type, style and location of asset it chooses for this investment. Additionally, the property location, number of units and style each lend themselves to a different type of investment strategy. While there are no guarantees, the variety of inventory allows the Investor to choose an investment exit strategy that best suits his or her Investment goals.
