May 15, 2023

To the Limited Partners of Ziggy Capital Fund I, LLC:

Q2 2023 has been an exciting few months of excellent bank appraisals, two renovations, new build planning, and significant revenue increases. The fund and your investment is rapidly increasing in value at 32% unrealized IRR over the first year. 

Please read on for a material announcement related to your investment, current and future operations, and market and macro conditions. 

As always, we appreciate your commitment and patience. 

Material Announcement

Due to prevailing market conditions, we have chosen to defer cash flow payments. Investors will not receive cash deposits this coming October. Our plan is to revisit this in 12 months.

Despite tough and unforeseen market conditions, we continue to deploy our capital. Our goal is to complete seven homes in 18 months with the hope of executing ten shortly thereafter.

We project that cash-on-cash multiple or rate of return will not be negatively impacted by this action. For more detailed information on our current operations and how market forces influence our strategy, please continue reading. And, of course, if you have any questions, don't hesitate to reach out to us.

Returns to Date

• Initial Investment: $700,000
• Market Value: $924,708*
• Unrealized Internal Rate of Return: 32%**

‍*Market Value is calculated by summing the latest fair market value. The number currently reflects third party appraisals for three post-renovation homes plus the purchase price of two homes pre-renovation. 

**We expect our IRR graph to exceed expectations in the early years of the fund, fall into the single digits in the middle years, and rise to highly profitable double digits by the end of the fund. This is due to the natural cycle of operations where we buy low and force appreciation first, followed by equity accrual and revenue share in the middle years, closing out with liquidation and appreciated home value at the end.

Portfolio Revenue

Revenue has hit a new growing pace since we took property management in house. We are only six weeks into this endeavor and the results are exciting. We intend to improve growth in the coming months as we increase occupancy, ratings, and rates. 

Monthly Rental Revenue

• January 2023: $2,454
• February 2023: $2,325
• March 2023: $2,827
• April 2023: $5,429
• May 2023: $8,034 (completed + scheduled)

Portfolio Progress & Next Steps

As of our February investor update, we had closed on five homes and renovated three. 

As of today

• Three homes are active on Airbnb.
• Our newly combined property of 602 and 606 Childs St. was appraised at 213% of the initial purchase price.
• Two properties are in progress of renovation.
• A sixth lot is being cleared for construction.
• Property management has been brought in house. May is going to be our best revenue month ever, nearly tripling March revenue. 

Current Work

• We are excited to announce that 217 E Pine St. will be undergoing a complete renovation which includes adding two bedrooms and another bathroom, resulting in five bedrooms and three full baths. The anticipated completion date is August 2023. For photos, please click here.
• We are thrilled to be renovating 308 W Sycamore St., a property right in downtown Lincolnton. This project entails a full gut, increasing the home to include one extra bedroom and bathroom. We anticipate completion by July 2023 and have already made tremendous progress on the job. Follow along with us as we transform this home.
• We are currently in the process of splitting 217 E Pine St. into two distinct lots for a new construction project. This involves clearing away any existing structures, debris, and vegetation that are occupying the space, as well as leveling and preparing the ground for a new house to be built from scratch.

Future Work

• Preparations for a new home. While this is outside our initial intended approach to flip distressed homes, we have acquired a large piece of land with an accessory plot that makes this opportunity feasible and financially exciting. After clearing the land we will prepare architectural plans and building permits. We hope to begin construction in late summer or early fall. 
• Scouting for 1-2 more home acquisitions. Capital available late fall. 

Market Conditions

Federal Reserve officials raised interest rates by a quarter point earlier this month, the 10th straight increase to beat back inflation. The move to 5.25 percent is predicted to cap the fastest increase since the 1980s as the Fed hinted at an expected pause in rate changes. Investors are betting that Fed officials will not raise interest rates further. 

Protracted rate increases, the failure of banks like SVB, and a looming debt crisis all point to instability in the U.S. economy. While international events like the BRICS union, a European sovereign debt crisis, weaponization of banking by the Chinese, and OPEC cutting production paint a murky picture for 2023 and beyond. 

Our fund, operating in the suburban sleeper towns of Charlotte, North Carolina is not immune to these factors. We have faced higher borrowing costs and slower lending timelines than expected. We are halfway through our portfolio plan instead of being almost done.  

Over the next few months, we will focus on factors within our control. We are splitting a large lot into two parts and building a new house, with cash. We are also shortlisting other empty lots and preparing to jump on a more active market as soon as the Fed begins to drop rates.

We are taking steps to reduce our costs and increase efficiency in order to thrive during these challenging economic times. We have taken property management in-house, hired experienced on-site staff to maintain the properties, and outsourced communications labor to the Philippines to help improve ratings. To minimize borrowing delays and costs we have executed more cash deals at the expense of working capital. 

Ziggy is well positioned as a residential fund in a growing region. North Carolina is booming, with its population increasing by an impressive 133,000 people last year; more absolute growth than all other states but Texas and Florida. Amidst record office vacancies and population declines in many areas of the country, we consider ourselves lucky to be building homes in the right place at the right time. 

We cannot predict the macro economic environment. We will continue to bet on the growing communities of rural North Carolina, physical assets, and operational improvements to maximize returns. 

Conclusion

Ziggy Capital Fund I has gotten off to a slower timeline than intended. Despite market headwinds, the fund is showing a strong 32% increase in on paper value over its first year.

We have elected to continue to hold investor capital for no more than an additional twelve months. This material change was not taken lightly and is in the best interest of all parties. 

Thank you all for your business and commitment to Ziggy Capital. 

Sincerely, 

Ziggy Capital General Partners