Transcription
[Music] Welcome to Waterstone Place in Minnetonka, Minnesota. We are on site today conducting our thorough due diligence process.
And the biggest reasons I'm super excited about buying Waterstone is due to the location, the low leverage fixed debt, and the relatively small value ad strategy we need to create in order to hit our investor returns. And I also love that the property was built in 2003.
Due diligence is an absolutely critical part of the buying process to help validate our investment thesis and really ensure we understand the property inside and out. The due diligence process is what solidifies our business plan. and it dials in our capex and our underwriting gives us that certainty that we can hit the returns we're putting out for our investors.
Waterstone Place is a 165 unit property built in 2003. Existing community amenities include two fitness centers, a club room and underground parking with a free self-car wash and grilling area for residents to get together. This property, Waterstone, saw substantial capital improvements from 2017 to 2020, where the current owners invested $3.4 million into the deal.
Our current business plan focuses on finishing the remaining 34 original units. We're going to increase garage parking, which was a management suggestion, and then we're going to install the Wi-Fi that will be mandatory with all new leases. We love this value ad strategy as it's very light lift compared to our older product.
We will be keeping the current property management company in place as they have managed this deal since the asset was built in 2003. The owners are currently selling this deal because they've owned the asset since it was built and the depreciation or their tax savings has run its course and they need to recycle their capital.
Another thing that's drawing us to Waterstone is the conservative underwriting. We're projecting an average rent growth of only 3.32% throughout the 5-year hold period. The property management firm has reviewed and verified that our business plan, our rent increases, and just our overall underwriting are realistic.
The location of Waterstone Place is strategically located in the highly desirable southwest suburbs of the Twin Cities. Minnetonka boasts extremely strong demographics, including a high one-mile median income of $74,000 and an average home value of $61,000. That equates to a mortgage, tax, and insurance payment of $4,339 per month to own a home. Whereas our rent here averages between $1,700 and $2,300.
We also have consistently high occupancy of 98%, which reflects the strong demand and extreme pent-up demand here in this submarket. Waterstone also has excellent access to major traffic corridors such as I-394, 169, and 212, which are all homes to numerous large employers, and it really pushes our drive-by traffic numbers.
This location also has unparalleled retail access. We sit just minutes away from major retail hubs like the Shops at Northwood, which is 3 minutes away, Ridgedale Center, which is 7 minutes away, and then the Shops at West End. The other major draw for residents to want to live here are the remarkable schools in Minnetonka. Minnetonka is currently rated A+ on niche.com and the high school is currently ranked number three in the state.
Another thing that's extremely attractive about this newer product is it's 2003 built. So, we have newer plumbing and our electrical systems are upgraded, which just reduces our ongoing maintenance and cost and capital expenditure risk. It just gives us a more certain return.
The reason Waterstone is so powerful is they have less than a 1% of gross potential rent written off as bad debt. That just tells you our T12 delinquency is extremely low and it tells us that our residents care about their future credit. So the submarket also shows a very favorable rent-to-income ratio of 14.6%, which that just further supports our outlook for rent growth in the coming years.
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