Wednesday, June 25, 2008

Another Investment Made

Today I made another real estate investment. I'm a hard money lender in a first mortgage on a single family home in Oakland, California. This was a property the buyers picked up at a foreclosure auction. The amount owed on the defaulted mortgage was $495,000. The bank set the opening bid at $202,000 and the buyers got it for one cent more than the opening bid. There is probably about $25,000 worth of repair work to be done to it and three independent people have appraised the property at $325,000 to $350,000 after repairs. The buyers are contractors and each is a multi-millionaire. Les, the guy who I partnered with on my previous hard money deal in Louisiana, has known the buyers for over a decade and has found them to be very honorable.

The loan is for 1 year with interest only payments at 12% with a balloon payment for the entire principle due at the end of the term. No prepayment penalties, standard late fees. The net to me is 10% since 2% is taken for the servicing of the loan. The first mortgage is for $156,000, so the loan to value ratio is between 45% and 48%, depending on which appraisal you use.

I'll refer to this investment as Hard Money #3, with #2 being the Louisiana deal and #1 being the small loan I did about three years ago.

1 comment:

Another Investor said...

Ummmm...where in Oakland, the mortgage fraud and murder capital of California, is this house? East Oakland? West Oakland? I'm sure we aren't talking Montclair...

Back in the mid-1990's you could pick up houses in East and West Oakland for $50,000 to $90,000. These houses subsequently "appreciated" to $350,000 to $500,000 in 2005-2006. Because of prices in San Francisco, people bet these areas would gentrify. In addition, there was more mortgage fraud in Oakland than just about anywhere in the country.

Now the reality that Oakland has more in common with Detroit than San Francisco has set in. As an example, the Oakland City Manager was just forced into early retirement for interfering with a police investigation of her nephew, a local gang leader. Prices are dropping like a rock.

Bottom line is your money at $156,000 is probably safe (but verify the buyer has fire insurance in case of arson). However, if you want to visit the security underlying the mortgage, I suggest doing so on a weekday between 8 AM and 10 AM, before the gangbangers get up.

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