Another New Loan Made

Just a day after starting a new hard money loan, my partner contacted me with another opportunity. This is another single family home, 1,900 square feet, 4 bedrooms, 2 baths. The outside looks nice:

But the inside needs about $30,000 of work. The previous owner / occupants included 7 adults, 2 kids, and 3 dogs. And no stove. You can imagine what it looks like inside. The previous owner tried to sell the property themselves, but, given the poor interior condition, was unable to find a buyer.

The borrower for this loan is, once again, my partner's wife. The property was purchased for $300K, and we are writing a mortgage for $220K, giving a 74% LTV. (I've rounded the numbers for simplicity, so if you do the math, you'll get a 73.3% LTV.) Fixed up, the property should sell for $390K. My partner used to live in the city this house is in, so he's got a better than usual knowledge of the area. He figures it'll take 3 months to get the place ready for sale.

The old owner is still occupying the property. He offered to leave in one and a half months and wants $6,000. My partner countered with four weeks and $1,500. No response from the guy yet. Technically, he doesn't own the house anymore, so we shouldn't have to pay him anything to get him out. But it would probably cost about $1,500 to hire an attorney to get him out and that process would take one to two months anyway. Might as well try the honey before the vinegar.

Labeling this one hard money loan #15. This one will take another third of the funds that got freed up over the past two weeks. I'm still looking for one more loan for the final third of my funds.

New Loan and A Sign Of The Times

As I mentioned last week, I had two loans get paid off recently. A third loan, hard money loan #8, was just paid off yesterday. This loan was somewhat unusual in that it was actually carried to the full 1 year term. I don't have any information on if the property sold or if the borrower just refinanced to pay us off and he still is working on or trying to sell the place.

So, with the exception of one loan through my self-directed IRA, my money is all just sitting around and not earning any interest right now. Or I should say, was just sitting around. Just got details of a new offer yesterday that I will invest roughly a third of my funds in. The borrower is a referral to my partner from a mutual friend. The guy knows what he is doing and rehabs houses for a living. He is also a member of CCIM, an institute of commercial and investment real estate professionals. The property is a single family home in Oakland, California that was purchased at a foreclosure auction. The property was purchased for about $265,000 and our mortgage will be for $198,000, giving us a LTV of 75%, based on the purchase price. The current value is approximately $323,000, so the LTV with that figure is about 61%. Loan is standard terms, with a slightly lower interest rate: 9%, interest only, 1 year term. I'll call this one hard money loan #14.Here's a picture of the property:

Not too pretty, but that's what foreclosure investing is all about.


I'm starting to see many indications that the real estate market is turning around. First, obviously, are the three loans I had close in two weeks. Those were sales in California. But even closer to my home here in the Phoenix area, I am seeing signs of a turnaround - literally. I passed this sign on the way home yesterday:

Note the "We're back!" line. This particular tract has been sitting vacant for two years. This sign was taken down two years ago and has just now been put back up. (The "immediate move-in" is something of a lie as there are no houses built yet.) On other empty lots around town, I am starting to see signs advertising new stores that will be built and should be open in a year or less. Perhaps the worst of the real estate mess is behind us now.

Two Loans Closing This Week

Hard money loan #12 is closing today. This one only lasted two months. That’s the shortest loan I’ve made in a while, possibly ever. The borrower almost got a discount for paying it off so quickly. The standard loan note my partner uses generally provides incentives for early payoff if made within 30 days of funding or 60 days of funding. The 60 day cutoff was June 5, so the borrower missed getting a $3,560 discount by 3 days.

Hard money loan #11 is still scheduled to close on Friday.

Got my first check from hard money loan #13 today. This is the one that I’m using my self-directed IRA for. I must say, I’m pretty happy. That one payment is already more than my traditional IRA that is invested in the stock market has made this year. Of course, I still need to recoup the costs of setting up the self-directed IRA, so technically, I’m still in the hole on this one. But getting a check each month feels a lot better than helplessly watching the stock market gyrate.

Loans Closing and Things Looking Up

It looks like hard money loan #11 is scheduled to close next Friday, the 11th. All in all, my partner says the California area where we have our hard money loans seems to be a seller’s market right now. We’ve currently got four properties in escrow. A couple buyers backed out, but new buyers were quick to appear. I expect to have my other loans paid off soon.

In multi-tenant property news, I received a nice detailed state of the market analysis from one of the principles involved in my Houston apartment deal. He lives in Arizona and his report is about the Phoenix area. For background, he talks about the factors that all conspired to get  us where we are today. Of course, the housing bubble hit the apartment arena as well as single family homes and people were buying apartments based on wildly optimistic pro forma numbers. But then the market softened and the large numbers of single family homes started hurting the apartment market. Many of these SFHs were put up for rent or left for foreclosure. Then the home buyers tax credit kicked in and many renters stopped renting and took advantage of the tax credit and glut of SFHs to become home owners.  But things are looking up now. Jobs are starting to come back and layoffs have slowed. Local businesses, such as restaurants and home improvement stores, are seeing business pick up. It looks like the apartment sector is starting to make a comeback. This person had stopped buying properties in the Phoenix area in 2005, when valuations were sky high. He now feels it might be time to start buying again.