The holidays were a pretty busy time for me and I realized I neglected to write about the performance of my Houston apartment complex investment. I also just got the update for December, so I’ll write about both now.
In November, occupancy dropped to 90%, due in part to the declining Houston economy. This property still continues to outperform the other apartment complexes in the area by 3-5%. The manager expected vacancies to remain at this level though December due to the holiday season, but expressed hope that rentals will increase after the first of the year. Cash flow decreased to just under $4,000 for the month and was impacted by higher insurance costs and real estate tax escrow requirements, as mentioned in the last update.
For December, occupancy remained flat, as expected. The submarket we are in declined to an overall occupancy of 87%, so we are still ahead of the curve. Unemployment in the area has increased from 6.5% in Q1 of 2009 to 8.4% in Q4 of 2009. Obviously, that affects the availability of renters. The Managers are cautiously optimistic for 2010 because job losses have slowed and they have increased their marketing efforts to attract new tenants. Cash flow dropped to just around $350, still impacted by higher insurance and tax escrow requirements. The good news is the management has obtained new insurance that will reduce the cost by about 30%, which translates to a savings of about $35,000 per year. The decrease in cash flow means there will be no end of year distribution to investors. For 2009, investors so far have received a 6.75% annual return overall. Management fully expects investor payments to continue next quarter. The semi-yearly investor conference call will be held the first week of February and I’ll have more info then.
I continue to receive on-time payments on hard money loans #10, 8, and 4. HML #9 was paid off at the end of December and that money is sitting with my partner looking for a new investment. We had one lined up, but it was a short sale and at the last minute, the bank decided to reject the offer, so that fell through.
My move towards a self-directed IRA is making progress. I have converted my rollover IRA to a tradional IRA and then to a Roth IRA. The next step is to transfer the funds to the company the sets up the self-directed IRA. I was planning on going with the iTrust product, but after discussion with the company, have realized that the LLC product, rather than the trust, is a better fit for what I will be doing. The only thing holding this up is that I haven't had time to fill out the paperwork yet. I hope to get that done this week. I'm not in a huge rush as it seems the hard money opportunities are slowing down a bit. My partner is noticing increased competition at the foreclosure auctions.
And finally, it’s been over a year since I was laid off from my day job, but I will finally be hired as a full-time employee again come next Monday. The company I have been working as a contractor for for the last nine months or so has decided to bring me on board permanently. While my passive income is not yet high enough to cover my living expenses, it was high enough to cover the expenses of my loans and credit cards during the year I was laid off. (I normally don’t carry a balance on my credit cards, but the layoff changed that temporarily.) It was a huge relief knowing those bills were covered during the times I had no income coming in. My practice of putting 15% of my paycheck into a savings account also helped my ride out that year. This whole experience has taught me the importance of both passive income and maintaining an emergency savings account.