Monday, August 29, 2011

Hard Money Loan #19 Started

My loan #16 was paid off last week, so my partner was on the lookout for a new loan to make. He found one almost immediately. This new property was bought at auction by one of our regular borrowers. He was the only bidder. He got the place for about $63,000. My partner estimates current value to be about $95,000 and after repaired value to be $120,000. Our loan is for $42,000, giving us a LTV of 44% based on current value and 35% at repaired value. The borrower, again, one of our best borrowers, is personally guaranteeing the loan. My partner was willing to fund this one with all of his own money, but since I had some on hold, he gave it to me. His mother also has a small share of the loan.

The property was a rental and has an unfriendly tenant that might need to be evicted. The area isn't the best, but it's not the worst either. It is near a freeway however, so that's a drawback. The house is a 4 bedroom, 2 bath built in 1912. The interior condition appears to be average with some updating needed. The exterior paint is peeling and the siding may need some work. Again, the location isn't the best, but the exceptionally low LTV makes this a loan I am comfortable doing.

I'm referring to this one as Hard Money Loan #19.

I also got some good news from the Houston apartment complex. July occupancy averaged 93% and turnover declined to just 23 units. These two factors increased monthly revenue by about $13,000 and gave the property its highest monthly revenue figure of the year. Rent concessions also declined.

While that was good news, the bad news was the property was still in a negative cash flow situation for the month. This was due to a couple of factors. As mentioned previously, our mortgage has now switched from interest only payments to interest and principal, meaning our mortgage increased by about $8,000 a month. The hot summer months have also caused the utility payments to be higher than normal. As we enter into the fall and winter months and utility bills decline, the higher revenue should easily offset the higher mortgage payment. On a year to date basis, we are still actually about $115,000 over budget.


Another Investor said...

Ummmm...looks like Oakland! That ought to be a fun eviction...

Shaun said...

Yep, it's Oakland.

Another Investor said...

I worked in Oakland for awhile starting in the mid-1990's. Lots of these properties could be bought in East and West Oakland then in the $40's to the $70's depending on location and condition. During the bubble, some of these properties sold as high as the mid-high $300's.

My guess is this house is in or next to one of the war zones. Hope your borrower gets it fixed and sold quickly, before it is vandalized or gutted by thieves.

Since the money you lend is "unemployed" between loans, what is your overall rate of return on this money? If the note rates are around 9 percent, is your overall rate somewhere in the 7's?

Shaun said...

Yeah, this property was listed in 2003 for $250,000.

Between loans, I earn 1% on my funds. In this particular case, there was no downtime between the closing of the previous loan and the start of this one, so I had no downtime. My loans usually run for 9 to 12 months and I typically have less than 1 month downtime between them, so my overall rate is probably close to 8%. Assuming a 1 month downtime between 9% loans, I would average an 8.3% return. Once in a while though, I do get to loan at 10%, which will boost that a bit.

Brett said...

Way to go!

Dan said...


Basil said...

nice post !

you have done well as you have described about Real estate and real freedom, well we are also dealing in Real Estate in North Fork, offering real estate sales and purchase in more than 100 locations at affordable prices. Rich in outstanding scenic views and living standards which will efficiently serve your both residential and commercial purposes with suitable price range.

© 2006 Shaun | Site Feed | Back to top