This Townhouse Development Offering Is Targeting A 21.2% IRR

RealtyMogul has an active listing for Townhomes at the Trail, a luxury boutique, build-for-rent townhouse development located in the Metro-Detroit suburb of West Bloomfield. The community will feature 103 townhome units and has a target internal rate of return (IRR) of 20.2% to 22.2%, or 21.2% at the midpoint. Is this realistic? Let's find out.

Offering Snapshot:

• Property Type: Townhomes

• Investment Type: Equity

• Investment Strategy: Development

• Target Hold Period: 36 months

• Minimum Investment: $35,000

• Projected Returns:

  • IRR: 20.2% to 22.2%

  • Equity Multiple: 1.79x

  • Target Return on Cost: 6.8%

• Hypothetical Return on $50,000 Investment (net cash flow):

  • Year 0: ($50,000)

  • Year 1: $0

  • Year 2: $1,999

  • Year 3: $87,447 (anticipated exit)

The Townhomes at the Trail

The Townhomes at the Trail will be a 103-unit townhome community in West Bloomfield, Michigan. The 103 units will consist of 34 units with two bedrooms and a two-car garage, 34 units with three bedrooms and a two-car garage, and 35 units with two bedrooms and a one-car garage. All townhomes will feature open floor plans, front and rear decks, washers and dryers, and expansive windows with nine-foot ceilings on the second floor, according to the Investment Summary.

West Bloomfield has all the attributes investors look for in a real estate market: a great location, a growing population, rising employment with low unemployment, rising average household income, and growing rents.

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Location

West Bloomfield is an upscale suburban community in Oakland County, the 7th wealthiest county in the United States. It offers a desirable suburban lifestyle with excellent schools, safer neighborhoods, less traffic congestion and pollution, numerous local opportunities for recreation, and various community organizations and destination parks, according to the Investment Summary.

Population

The total population of West Bloomfield currently sits at 61,187, a 0.2% increase from the prior year, according to Point2Homes.com.

Employment

The Detroit-Warren-Livonia Metropolitan Statistical Area (MSA) reported employment of 2.13 million people in December 2023, compared with 2.04 million in December 2022, an increase of about 0.4%, according to the U.S. Bureau of Labor Statistics. The unemployment rate stood at 3.3% in December 2023, compared to 3.2% in December 2022, both of which are well below the national average of 3.7%.

Major employers in Oakland County include Chrysler, a subsidiary of Stellantis (NYSE:STLA), General Motors (NYSE:GM), Lear (NYSE:LEA), and Amazon (NASDAQ:AMZN), according to Oakland County's website.

Income

West Bloomfield's median household income clocks in at $125,252, an 8.5% increase from the prior year, according to Point2Homes.com.

Rent Growth

Metro Detroit has shown a steady increase in the rental rate, including a 1.3% increase in the second quarter of 2023 when compared with the prior year, according to the Investment Summary, which cites data from CoStar.

Is a 21.2% IRR realistic?

After reviewing the investment offering of the Townhomes at the Trail and digging deeper into the location, population, employment, household income, and rental rates, an IRR of over 20% appears realistic.

More Private Market Offerings:

• This Multifamily Development Offering Is Targeting A 22.8% IRR – Are These Returns Realistic?

• Extended Stay Hotels With A Target IRR Of 20.6%

• Lotus Lofts Multifamily Development With A target Cash Yield Of 8%

Image Source: RealtyMogul

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