It took just about a week, but my funds from HML #17, which closed on the 21st, have found a new home.
Our best borrower picked up a triplex at a foreclosure auction. The property is in San Lorenzo, California and went at auction for $331,000. Our loan is for $210,000. The property square footage is about 2,600 although the MLS listing for it does not give a square footage.
As we did with the last property, we pulled comps using both residential and income property searches on the MLS. Income property comps show up at $315,000 for a 4-plex that is smaller than the subject property and another 4-plex listed at $725,000 but that's bigger than the subject property. There is a triplex that sold recently for $329,000 that was smaller.
On the residential comp list, we had about 12 properties, all that were smaller than the subject and all on smaller lots. Highest priced one sold for $335,000.
Based on rents of single family homes in the area, my partner estimates the monthly rental income to be about $1,200 per unit. (The subject property is really a single family house with a duplex in back.)
Our borrower estimates the property to be worth $500,000. I'm not sure how he gets a figure that high, but he knows the area better than me and comps are pretty hard to come by, as usual for triplexes. The property has tenants in place and they have indicated they want to stay. We have not seen the inside, so we don't know the condition. The roof appears to need some work. Our borrower has experience in the area - he actually rehabbed the property right next door, which is a 1,000 square foot SFH that he sold for $280,000 back in August. My partner was his lender on that project too (although I wasn't).
Our LTV based on the sales price is 63%. Should we have to take over the property, we'd get an income-producing property generating about $29,000 per year for $210,000. Not bad. Our loan terms are our standard - 12% interest only loan, 1 year term. And with this deal, all my funds are fully invested again!
8 comments:
Shaun, I have been following your blog for quite a while. I have discretionary investible funds for HMLs. How do I find reliable borrowers in my area. I guess its desireable to have a partner who has a reliable borrower network.
Thanks.
Yes, it's easier when you have a good partner :-) Finding good borrowers really depends on how much you have to invest and the market in your area. If houses sell for $100K in your area and you only have $40K to lend, you're going to have to partner with someone as you won't be able to lend enough on your own to buy a property. Look for other hard money lenders in your area through real estate clubs. Contact them and see if they are accepting investors to jointly fund deals. If you have enough funds to lend on your own, I would look for borrowers who have experience flipping houses and have used hard money before. In HML, your security is going to come from the property so be sure if you lend that there is enough equity in the property to get your money back out and cover your costs if you have to foreclose and sell.
If you are interested in investing outside your area, feel free to send me your email (leave it in a comment here - I won't publish it) and I can put you in touch with my partner. He's been doing HML in the Bay area for 20 years and has never lost a dime of his investor's principle. I think he requires a $30K minimum investment.
To: hawkdc66.
I am sure it is not easy to find borrowers at the moment. But you can try smaller banks. They give loan still quite easily.
Shaun,
I just found your site today and I am trying to catch up on everything you have posted. You have a lot here.
I have 13 rentals and I am now going to try flipping (tired of tenants). I have 2 deals in the works now. Both financed 80% by local banks.
I would like to find an investor for future deals but I am not having much luck.
Also, I would like to wholesale one of these but I do not know other investors in my area. Any tips on meeting other investors? (rei club closed years ago).
I like that you consider this an adventure. I have a blog called:
realEstateAdventurer.com
It is new and does not have a lot of content. I would welcome your critique.
Wow.. 13 rentals.. that many should insure you get some good service from a property management company. Or were you managing them yourself?
Flipping using bank money is probably difficult, to say the least. Not to mention, more expensive and slower. But if you found a bank that will work with you, that’s good.
No REI clubs at all in your area? You could start going to foreclosure auctions. Note which people seem to be there on a regular basis and talk with them. Or, just note which properties go to auction, then do title searches on the properties a few days or weeks later (to allow time for recorded docs to get published). (If your county recorder has online access, this is easy, otherwise, it may require some legwork.) You will probably see the same few names coming up the titles fairly frequently. Those will be investors. And you can always make friends with a Realtor. They tend to know some investors. Look for hard money lenders in your area – they’ll have lots of contacts too.
Like your blog.. Reminds me of when I was actively flipping houses.. I kinda miss those days.
Last week I asked for blog advice and you gave some excellent comments at my blog. I mentioned a nasty pool at a house and you wanted to see a picture. I now have a pic posted.
You can see it at:
realestateadventurer.com
Thanks for your input
Great post Shaun...I agree with your post.....Thanks for posting the nice stuff...
HML may seem easy, but it is not.
I have done 1 day seminars on the subject only to find out that participants have decided to do loans by themselves. Years later I find they are broke from doing bad loans I've heard that on 2 occasions.
Seriously consider partnering with someone of reputation and knowledge or investing very little of your money.
I personally will not do loans with some borrowers no matter what the equity. Why? Let's just says
from experience it's not worth the hassle.
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