To the Limited Partners of Ziggy Capital Fund I, LLC:
Since beginning operations, we have acquired five properties in the greater Charlotte area. Of those 5 acquisitions we have combined two properties and split the largest in two to prepare for a possible additional new build. We’ve completed renovation on three homes, and are currently establishing them as short term rentals, while construction on the rest are ongoing.
2022 proved one of the most turbulent years in the housing market in four decades. After quickly acquiring the first half of the Ziggy Fund portfolio we slowed down to focus on cash funded renovations, cashflow, and creative means to maximize working capital and expand the portfolio.
This update covers fund activity and performance of October 2022 through January 2023 and our plans for the future. As you will read, we are poised to transition from a slow winter to an aggressive spring of renovations, a new build, more acquisitions, and internal property management.
As always, thank you for your continued support and patience. We remain committed to transparent communication as we navigate a turbulent market.
The fund has been active for 10 months. Our timeline is to return the first capital distribution to LPs after 18 months. We remain on track for this goal.
As of our October investor update, we had closed on four homes.
As of today:
Childs Street 1, Lincolnton, NC: Renovation Complete
One bedroom, one bathroom, 590 square feet. We completed this tiny home in record time and at a very low renovation cost. The property is listed on Airbnb and renting nicely.
Childs Street 2, Lincolnton, NC: Renovation Complete
Two bedrooms, one bathroom, 1,072 square feet, converted to a three bedroom, two bathroom family residence. Situated just off of Main Street this renovation is complete.
Note, the two Childs Street homes have been combined into one lot. We are refinancing capital out of the property now.
Salem Street, Lincolnton, NC: Renovation Complete
Three bedrooms, one bathroom, 1,227 square feet, converted to three bedrooms, two bathrooms. Purchased for 40% less than the Zillow estimate and situated on a large 2.5 acre lot. Renovation is complete and the home is listed and getting established on Airbnb.
Pine Street, Lincolnton, NC: Renovation Beginning in February
Three bedrooms, two bathrooms, 2,808 square feet. This property is a home run. It is situated next to a walking greenway, across from a local splash park and one block from bars and restaurants. We are set to begin renovation on the main house. We are also planning to use the second lot on the property for a new build.
Sycamore Street, Lincolnton, NC: Renovation in Progress
Renovation will commence soon. This unit is situated across the street from the local library and just a few blocks off the main street restaurants and shops. We expect it will perform nicely as a short term rental.
Pine Street Lot 2, Lincolnton, NC: New Build Planned for Q2 2023
This is an additional lot that came along with Pine Street #1. It s a prime lot backing a greenway with room for a new building. We have begun planning and conducting initial due diligence assessments on this property.
We are currently focused on improved occupancy for on market rentals, finishing renovations on two homes, and conducting due diligence on an exciting opportunity for a new build on the additional lot. We’re also improving margins by bringing more operations in house.
Property Management in House
To ensure maximum occupancy rates, maximum revenue, and highest possible margins we have decided to bring property management in house starting in Spring 2023.
This was not originally planned for Ziggy Capital Fund I. However, turbulence in the property management industry coupled with rising rates and our desire to find margins wherever possible inspired us to reconsider.
We’ve identified local full time talent as well as an around-the-clock communications team to handle guest relations. We are confident that we can increase occupancy and cashflow by actively managing distribution ourselves.
Refinance First Half of Portfolio & Reflect on Internal Opportunities
We are currently refinancing out of our completed homes and are looking ahead to new opportunities for acquisition vs internal development of our already acquired Pine St lots.
Airbnb & Rental Demand
The housing downturn seems to have also impacted rental demand. The number of future nights booked as of October 2022 was up nearly 16 percent year-over-year, while the number of short-term rental listings in the U.S. rose 23 percent during that time, resulting in supply outweighing demand.
We believe this is a natural moment in the cycle that began with high demand during Covid in 2020. We are confident that the coming summer travel season and a more active housing market will move us through the downturn. However, we remain keenly aware of the risks posed by a business with so much competition and so much cyclical demand.
Localized Portfolio
The Ziggy portfolio remains concentrated in the larger Lincolnton area. The community is exactly the type of sleeper community outside a growing metropolis that is poised to grow over the next decade. This concentration is a risk to the fund and will remain one until we diversify to other regions of North Carolina.
The S&P 500 lost 19.44% in 2022. Mortgage rates more than doubled. The price of Gold declined. The investment environment is unpredictable - we discuss general market conditions in a more lengthy section below, if interested.
At Ziggy Capital, we remain committed to U.S. residential real estate as a lucrative, dependable, and proven investment. One that isn’t merely subject to market forces but enables us to control returns by rehabilitating old homes, searching for overlooked deals, petitioning city councils for new zoning, and generally forcing value through effort.
As always, we appreciate your continued confidence. We are looking forward to an active and profitable 2023.
All the best,
Ziggy Capital Partners
As we were closing on Ziggy Capital Fund I, we were in the midst of the fastest rise in mortgage rates in 40 years. As housing demand plummeted, we jumped at the opportunity and acquired the first half of the portfolio quickly. Since then the property market has been in hibernation. With interest rates high, mMoney is expensive and the buyers and sellers are cautious. Housing stock is low and the market has ground to a halt. But the outlook for 2023 is positive, housing prices are falling presenting opportunity, and recent job reports and stabilizing interest rates give us hope.
We expect early 2023 to remain slow: home prices, rents, inventory, and interest rates likely won’t move. Housing stock is slim. A healthy housing market usually has four to five months supply; as of November the country had a 3.3 month supply of homes. There just isn’t much for sale and despite a lack of supply prices are holding steady.
Some real estate economists have projected that mortgage rates peaked in November and will begin to fall and stabilize in 2023. The chief economist for the National Association of Realtors believes rates will hover at 6%. Borrowing stability and continued job growth could provide the level of confidence necessary to turn more homeowners into sellers and open up the market. And prices are looking good: Redfin is predicting prices will fall by 4 percent in 2023 and numbers have stabilized or fallen in the larger Charlotte region.
We’re holding out hope that the economy continues its steady improvement and more properties become available at fair prices. In the meantime, we’re focused on creative strategies to make the most of market conditions and limited capital.
