Well, not 100% yet, but it is close enough now that I feel comfortable writing about it.
The last time I wrote about this, the mortgage holders had a conference call to determine how we should proceed at the foreclosure auction and what would happen if no one bought the properties and we ended up with control of the buildings. The auction was supposed to happen on December 5, however I fully expected "Joe" to file for bankruptcy and thus delay the auction.
It turns out, he did not do that (at least, not to my knowledge). Instead, we postponed the auction. Why? We found a buyer for the mortgage! Now, normally, when a defaulted mortgage is sold, it is sold at a deep discount. However, we were able to sell the mortgage for 100% of our cost. This was mainly because the properties secured by the note are worth much more than what we were owed. Some other factors specific to the note buyer came into play as well. Namely, the note buyers had a legal judgment against Joe in another matter, so this helps satisfy that judgment somehow (I'm not entirely clear on this though), the purchase was part of a 1031 exchange the buyer was performing, and, to put it bluntly, the buyer has a little bit of a personal grudge against Joe and enjoys taking property away from him.
So, when you combine the fact that this was part of not only a judgment settlement, but also a 1031 exchange, you can imagine the paperwork involved, which was the cause for most of the delays. (Some were due to the 1031 exchange agent not being able to follow directions.) And since we are talking about a total just north of $1.7 million, you can imagine everyone wanted to be sure all the i's were dotted and the t's were crossed.
We will get back all of our original investment, plus interest due and late fees. The only hold-up now is that the amount that the buyer wired to us was based on a December 3 close date, not December 18. With the amount of money involved, the additional 15 days interest is not insignificant. The new owners also want a new assignment of interest form from us, so we are getting that to them. Right now, with the exception of the additional interest, the buyer's funds are in our attorney's bank account, waiting to be distributed to us.
This was a great learning experience for me. It was the fist time I have ever invested in any sort of commercial project. Although I wasn't involved in the day-to-day dealings, I did get to listen in on conference calls and see how more experienced players deal with problems. We went through several possible outcomes, including one where we thought we might buy a bunch more property and end up doubling our money. At times, it was a roller coaster ride and the end game changed fairly frequently. I felt lucky to see some serious deal-making at work and also to see how different deals failed and the reasons for their failure.
The ROI I was getting paid on this was 12%. With the late fees, I probably did a little better than that. But the money I invested came from a HELOC, which was charging me about 7%, meaning my net gain was 5%. (Although during the 1.5+ years I was invested, my HELOC rate fluctuated, so my net gain varied a bit as well.) In fact though, my net ROI is infinite. Because the money I invested was not mine, any return I got from it represents an infinite return - money from nothing. Note that I would not recommend this method for just anyone! Before I made the decision to invest this way, I needed be sure that if the investment went south, I could still make my monthly HELOC payments. It turned out to be a good thought exercise, as that is exactly what happened. I think, all told, I had about 8 months of no payments. I got all the unpaid interest back eventually, but until then, I had to make the HELOC payments myself. All in all though, an infinite ROI is pretty hard to beat!
At this point, I need to thank Les. He was the one who brought this investment to my attention. In fact, I actually bought out part of his investment in the buildings over a year ago. He eventually sold all of his interest to other investors (although he still kept a small percentage of each monthly payment as a servicing fee, so he was still making some money on it). However, even though he no longer had any of his own money invested in the deal, he spent countless hours working first with Joe and then with the note buyers to make sure his investors got all of their money back. I never once felt like he was not fighting for my best interests or didn't care about helping us. I cannot even begin to image the countless hours he spent dealing first with Joe (and from what I have heard, that was a nightmare), and then with the new note buyers. He will still get some money out of this deal, but compared to the amount of work he put in, I think it won't be much. If anyone has a chance to work with him, he's got my highest recommendation. He's honest, honorable, and a good communicator (although not so good of a typist). Personally, I plan to invest with him again.
Wednesday, December 19, 2007
Well, not 100% yet, but it is close enough now that I feel comfortable writing about it.
I was watching A Charlie Brown Christmas the other night with my wife and daughter and was surprised by the shrewd financial savvy of Lucy. This is an exchange she has with Charlie Brown:
Lucy: I never get what I really want. I always get a lot of stupid toys or a bicycle or clothes or something like that.
Charlie Brown: What is it you want?
Lucy: Real estate!
You can see it for yourself in this YouTube clip at around the 6:50 mark.
Posted by Shaun Stuart at 12:42 PM
Tuesday, December 18, 2007
The Louisiana deal is still dragging on.. Hopefully it will be done today and I can post what's been happening..
In the meantime, I am asking for some help, particularly from any readers in Germany.
My father-in-law was in the Air Force and when my wife was growing up, she spent some of her teen years living in Germany on the U.S. Air Force base there. She also loves Christmas and while living there, she fell in love with an album of Christmas music by a German artist named Heino. For the last several years, she's been trying to find this album on CD, without any luck. So if there are any German readers out there who can look for and pick up a copy of the below CD for her, I would greatly appreciate it. I believe the CD is out of print - it was originally issued in 1994. A used copy is fine though. The CD is a reissue of an album that was released long ago under a different name. I should also note that this is the only CD my wife is interested in. She doesn't need any other Heino CDs (thankfully).
Thanks to anyone who can help!
Heino - Die Himmel rühmen
Posted by Shaun Stuart at 9:42 AM
Friday, December 14, 2007
Anonymous asked for an update on the four LLCs I am invested in that flip properties in the San Francisco area. There is not much news that is different from my last update on these. Three of the four are now ended and the fourth one ends in the next six months.
The real estate slowdown has really put the brakes on these investments. Although the terms of the LLCs are over, they are still operating. Why? Because the properties they own have not yet sold. They are being rented out now to generate some cashflow, but the return of my principle is being delayed until the properties sell. Not all of it though. Last month, the latest LLC to end distributed 20% of my initial investment. The rest is still tied up in properties.
The company that runs these LLCs has offered investors a new program where you earn 9% on your money, paid monthly. You can roll your original LLC investments into this new program. However, the program requires a two year commitment. I can earn more than 9% and I don't want to tie up my money with them for another 2 years, so I've opted to skip that investment. Now I just have to wait for the properties to sell. The way things are going, it might take two years anyway..
Hopefully, I'll have an update on the Louisiana deal later today...
Thursday, December 06, 2007
My experiment in reselling a Wii for some extra cash is now over. I am a bit disappointed in the results, but I still came out ahead, so it wasn't a total failure.
My eBay auction ended with a high bid of $450, plus $39 for shipping, handling, and insurance. I was hoping for closer to $500 though. Here's all the details:
|Shipping, Handling, & Insurance||$39|
|eBay Listing Fee||- $4.35|
|eBay Final Value Fee||- $15.13|
|PayPal Fee||- $14.48|
|Cost of shipping box||- $8.00|
|Shipping & Insurance||- $24.78|
|Cost of Wii||- $375|
The profit wasn't close to $100, as I had hoped, but it is still acceptable, considering the tiny amount of time I put into this. Close to a 13% profit in five days, most of which was just waiting for the eBay auction to end. I figure I spent less than 1 hour on the whole deal.
eBay and Paypal fees killed me. I knew they were expensive, but forgot how expensive. No excuse for this. I could have easily looked up the fees before I placed the auction. However, had I decided to sell this on Craigslist or some other site instead, the amount of time I had invested would have been more, so it's a trade off between effort and cost. I also could have used a 3 day auction length instead of 5 days. No one bid until 2 hours before the end time, which I half expected, so there was a lot of wasted time there. I also only had 5 bidders. I was expecting closer to 15, based on the other auctions I was seeing. And finally, my auction ended on a Tuesday night, at around 9 PM Pacific time. Auctions that end on weekend nights tend to do a bit better.
All in all, I'm happy with my $47 profit, considering how little work I put into this effort.
Posted by Shaun Stuart at 6:50 AM
Tuesday, December 04, 2007
I got my tax bill in the mail for the next year's property taxes at Rental #1 and got a nice surprise. When I was analyzing the property before purchasing it, I used the tax estimate calculator at the assessor's website and had estimated my yearly property tax to be $989.00, based on my purchase price for the house. But the tax bill is currently still being figured using the seller's purchase price, which means my tax bill is only $376, just a bit higher than the $371 the previous owner was paying. That gives me an extra $51 a month in cashflow! Of course, I'm sure next year the taxes will go up, but at least I got a one year reprieve from the higher tax.
And that money will come in handy. The property is still not rented yet. It's only been on the market for two weeks though. The old tenants moved out the end of October and the management company had it off the market for two weeks for cleaning. December is the first month that I've had to make a mortgage payment without getting any rental from it, so hopefully it will rent soon.