Appartemento Amelia
The story of Appartemento Amelia projects Progetto revenue over a ten-year period using five different exit scenarios. First, coinvestor buys outright after five years; second, coinvester sells after five years; third, coinvestor holds for ten years; fourth, coinvestor initially buys outright, fifth, Amelia never sells. In short, if the above scenarios are evenly distributed, 1,000 properties like Amelia project an average annual revenue of around $50 million over the 10-year period.
Here’s Amelia’s story. Progetto Fund I acquires a pretty little apartment in beautiful countryside town near a major city, for $50k, including closing expenses.
Progetto develops the vacation rental, Appartemento Amelia, by adding a new faucet, sink, backsplash, paint, bathroom tile glaze, and lighting fixtures for $15k, and a couch, two chairs, bed, art, dressers, books, three lamps, kitchen items, linens, towels, decorative ceramics, floor mirrors, Nespresso machine, smart lock, air conditioner, and other items for $10k.
$75k to develop.
Appartemento Amelia costs $75k to develop, not including lean Progetto’s design team time.
Progetto begins to rent Appartemento Amelia to for short- and mid-term stays to vacationers and digital nomads. Property A is marketed by Progetto and its partners (Boutique Homes, CIDM, Homestead Hospitality, agents) a beautiful little vacation rental with strong projections and the beginnings of a rental track record.
After six months, Appartemento Amelia sells to Francesca, who rented for a week and loved it.
Francesca buys Appartemento Amelia with Progetto, putting in $75k.
Francesca, purchases at $150k purchase price, getting 50% equity when she puts in $75k, matching a $75k equity 50/50 coinvestment from Progetto. She closes quickly, with solid vetting, but without the income requirements of a mortgage—perfect, given her complicated freelance tax returns—and receives 50% equity in the property, accessing purchasing power equivalent to an Italian mortgage.
Francesca is busy freelancing in New York and LA, but Francesca tells the story of her triumph and gorgeous home with beautiful photography in New York. Her 34k social media followers rejoice. The property continues to cash flow. She stays free for a few weeks in beautiful September, when the olives are harvested and the tourist demand wanes. She visits for the easier, foggy winter, with fires in the neighboring hills and little restaurants, a latter-day Sam Youkilis, who posts about her favorite road outside the nearby town of Orvieto. She comments. Sam likes it. She loves the home’s design and adds a couple simple ceramics of her own from the market in town.
All told, Francesca’s apartment is rented at a modest 40% occupancy rate at a modest $150 daily base rate, plus 21% Italian STR taxes and cleaning costs. Progetto’s remote concierge handles a few guests complications during the year; a lightbulb goes out—the cleaner changes it, and finds a new lamp a guest knocks it over. The response and reviews are strong: the area is beautiful and the apartment is just right.
For the year, Francesca gets $7,760 ($21,900 gross - $4,380 management, divided by two, less $1,000 utilities and expenses.) Progetto gets $14,330 ($21,900/2 + $4,380, less $1,000 utilities and expenses).
The next year, Progetto and Francesca improve the marketing and bring occupancy to 60%. Francesca’s new friend Sam Youkilis crashes a few times, posting, and nightly rates hit an average of $200. For the second year, Francesca gets $17,520 ($43,800-$8,760, divided by 2, less $1,000 utilities and expenses). Progetto gets $29,660. It’s a banner year. Thanks, Sam.
In 5 years of rentals, Francesca makes $58,875 and Progetto makes $181,781.25.
After five years, averaging 50% occupancy and $175 nightly, Francesca has averaged $11,775 ($31,937.5-$6,387.5, divided by 2, less $1,000 utilities and expenses). She’s made $58,875 in passive rental income. So far, Progetto has grossed $106,781.25 ($22,356.25x5-$5,000) on rentals after utilities and shared apartment maintenance expenses. Including Francesca’s initial $75,000 equity purchase, for the five years, Progetto gets $181,781.25.
Now, Francesca is working for bigger clients and has more money and time to travel. She thinks: I want to spend more time in Italy. Should I buy Appartemento Amelia outright or sell and get a villa to entertain Sam and our friends? Choose Francesca’s adventure.
After 5 years, Francesca buys Amelia outright, netting $32,125 after 10 years.
Progetto buys two more properties, netting $628,523 total after 10 years.
If Francesca buys out Progetto at the Option Price, she can do so after three years at 50% times her purchase price of $175,000, plus 3% appreciation. The amount is $202,872 divided by 2 equals $101,436.
She pays Progetto $101,436 and wholly owns Appartemento Amelia. All told, she’s put in $176,436 and gotten $58,875 in rental income. All told, she’s down $117,561, but has an apartment she loves in Italy with a strong track record, and is keeping Progetto on to manage at their higher 30% fee for non-portfolio properties. For the next five years, she makes $29,937 annually after $2,000 utilities and maintenance, totaling $149,686. Congrats, Francesca!
Progetto is happy, too. For the first five years, after Francesca’s purchase, after utilities and maintenance expenses, it grosses $181,781.25 + $101,436, totaling $283,217.25 on its initial $75,000 investment. After ten years, with continuing management fees, Amelia grosses $331,123.50 ($283,217.25 + $47,906.25), netting $256,123.50 on the investment.
But there’s more. After Progetto pays back investors with its $283,217.25 in cash, it reinvests $200k in two new properties, Casa Giovanni and Casa Alessandro, and with similar performance for a four year period, brings in $200k in new coinvestment, and $196,400 in rentals over the next four years ($292,000 divided by 2 plus $58,400 - $8,000 expenses).
Then, after ten years of venture backing, scale, and proven rental cash flows, Progetto refinances its 50% equity stakes in 1,000 properties, including Giovanni and Alessandro, with a large debt lender that values the Giovanni and Alessandro equity at $220,000 and loans 80% LTV ($176,000) at 6% interest. Progetto reinvests the cash while servicing long-term debt, with cash-flowing Giovanni and Alessandro adding $1,055 to its monthly debt payment. For Giovanni and Alessandro, Progetto nets $372,400 (-$200k + $200k + $176k + $196,400).
For the ten years, between Amelia, Giovanni and Alessandro, Progetto nets $628,523.
After 5 years, Francesca sells Amelia, netting $110,015.
Progetto resells half, Progetto netting $252,423 with a refi to $316,423 in ten years.
It’s time for Francesca to think bigger and she wants to buy a villa—don’t worry, still with Progetto, of course. While there is nothing in her contract with Progetto that requires Progetto to buy back her equity at any time and price before 30 years, she is permitted to offer Progetto the option to buy at a rate determined by their proprietary formula. Progetto runs the numbers and is willing to buy her 50% equity at $51,139. It’s lower than her initial $75,000, but she’s ready to exit and has made $58,875 in passive investment income. She takes the deal and reinvests in a villa.
Progetto owns Amelia, markets it for 12 months, spends $10k refreshing the property, and after 12 months sells to Andrew at $200k—it’s got a great track record now. He puts in $100k. Progetto gets more four more solid years of rentals in the ten year period. After ten years, Progetto nets $252,423 ($75k - $75k + $100k - $51,139 - $10,000 + $192,206.25 rentals ($287,437.50 divided by 2, plus $57,487.50, minus $9k expenses).
Then, Progetto refinances with large debt lender that values the Amelia equity at $80,000 and loans 80% LTV ($64,000) at 6% interest. Progetto reinvests the cash while servicing long-term debt, with Amelia adding $384 to its monthly payment.
Including the cash from its refinance, Progetto ends up with $316,423 (and counting), retaining its equity stake.
Francesca holds for ten years, getting $117,750 in rent.
Progetto nets $213,562 and refis to $277,562.
Francesca considers the options and decides the current Appartemento Amelia setup is the right fit. She holds for at least another five years.
She makes $117,750 ($319,375-$63,875=$255,500/2-$10,000). She recoups her investment around year 7 and loves using the property.
Progetto makes $213,562.50.
After ten years, Progetto refinances as above, with Amelia adding $384 to its monthly payment, and ends up with $277,562.50 (and counting), retaining its equity stake.
Another scenario: In the first year, Francesca buys Amelia outright, and Progetto reinvests, getting $626,781 after ten years.
Now, pretend that Francesca had just bought Amelia at $150k right away. Progetto took that $150k and created Casa Fontana and Casa Lucca for $75k each. They sold for $125k each in Year 3. Progetto then bought Casa Giorgio and Casa Maggiore for $125k each and sold them for $200k each in Year 6. Progetto then bought Casa Prado and Casa Prada for $200k each and sold them for $300k by Year 10. Progetto nets $525k from the sales.
During the period, the various homes rented at a 25% occupancy rate at $175 nightly for seven rental years for $101,781 in rental revenue, less expenses.
All told, Progetto gets $626,781 after ten years.
A final scenario: Progetto never sells Amelia, netting $205,000 in ten years.
After ten years, Amelia is an outlier that somehow never sells. She did 40% occupancy and averaged $150 nightly over ten years, grossing $209,000 after expenses.
After ten years, she is refinanced, and Progetto takes out 80% of $100k in equity, or $80,000, for $480 monthly payment. Progetto nets $205,000.
Net Revenue
An even distribution of the above five exit scenarios projects an average net revenue of $410,858 over ten years, or $41,085 annually per property.
For 100 properties, average annual net revenue for that period is $4,108,578.
For 1,000 properties, annual net revenue for that period is $41,085,780.
Additional revenue streams like memberships and partnerships could increase revenue by 20%, bringing the total to around $50 million.
Operation
During this period, in all of the above scenarios, Progetto, the OpCo will be spend on:
Progetto’s operating and executive teams, in marketing, technology, and customer experience, as required by the scale of the portfolio.
Marketing the portfolio to renters, including ad sales and social media partnerships;
Buyer customer acquisition;
Remote concierge, customer experience, cleaner management, and quality assurance;
Hospitality design, property development, and listing for sale;
Property listing development, including photography and local activity ideas and partnerships;
Property identification and market analysis;
Contacting local services when maintenance issues arise;
Legal, office, insurance, etc.