Wow.. I can’t believe I haven’t updated this blog since
December! Truth be told, there isn’t much happening. My three outstanding hard
money loans continue to pay on time. I haven’t received an update on the
Houston apartment since last time, so there isn’t a whole lot to tell there. I’m
assuming performance of that still sucks or we would have heard something. I
did make a decision to go a bit further into hard money lending. I’ve got some
money in a UTMA account for my daughter that has been languishing in the stock
market for the past 5 years. I finally got fed up with seeing it sit there
doing nothing and have liquidated the stocks and will be switching those funds
to HMLs as soon as the trades settle and my brokerage can get me a check. I
have noticed in the paperwork I get for some of my existing loans (trust deeds
and recorded docs and such), other people I lend with have done the same thing.
In somewhat-related news, my self-directed IRA is getting up
there in value. I think in the next couple of months, I’ll split that
investment into two loans just to provide a bit of diversity. It’s not diversity
in the stock market sense of the word, as both loans will be in the real estate
sector and the same geographic area (probably), but the loans will be on two
different properties, possibly with two different borrowers. I need a couple
more months of interest payments before doing this though, in order to satisfy
the minimum balance requirement for my bank account before I withdraw the
funds.
The market seems to be picking up in the California Bay
area. My partner says for the first time in a long time, he has more requests
for loans than money to fund them.
Monday, February 13, 2012
First Update Of 2012
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13 comments:
In your shoes I would be concerned about the Houston apartment investment. No report for two months and the large gap between income and accounts payable on the last report are NOT good signs. Can the GP issue a call for additional cash from the LP's? That might be throwing good money after bad if it happens.
The partnership may be out of compliance with the terms of the loan or, worse, not be able to meet either payroll or tne mortgage payments. Might be a good time for you to review all the original documents to see under what circumstances the lender can call the note.
I can't say much about the East Bay, but in the South Bay, consumer businesses are definitely picking up. The restaurants and shopping center parking lots are full. Remodeling activity is increasing around my area - lots of contractor trucks. Traffic is getting worse again. All the noise about Facebook seems to be affecting the real estate market in Palo Alto and further north, but I can't tell yet if there will be a ripple effect to the south and east.
Hi Shawn,
I have been reading your blog for a while and really appreciate all the insight you have in sharing your adventures in real estate! I'm a newbie in HML with one underway with steady interest payments. I was hoping you could tell me how you source these deals. I only come across these deals from a family friend who is a mortgage broker and I assume that you only get them through your personal connections and relationships. Is that right?
Or do you actively go out and market yourself and your HML to builders/developers in your local area?
Thanks,
Jason
Your timing is impeccable. Two hours after your comment, I got an email from the apartment management asking for more cash. I need to read the details before commenting further..
Jason - I've partnered with someone who used to be a mortgage broker and has been doing hard money lending for almost 20 years now. He's got all the contacts.
I try to read most of my favorite blogs in a feed reader but I seem to have a lot of difficulty with yours. This post in particular must have been cut-n-pasted from MS Word because my feed reader is detecting a bunch of mso formatting code.
Anyway, I just wanted to let you know that your feed doesn't validate so that you can look into it. (http://www.rssboard.org/rss-validator/check.cgi?url=http%3A%2F%2Ffeeds.feedburner.com%2FShaunsRealEstateAdventures)
Thanks for your blog... hope to be able to see it in my feed reader soon.
Brandi - interesting. I think it's fixed now. I don't think I wrote this in Word, but I might have. I usually compose in a blank email window and copy and paste from there. Oh well. I'll keep this in mind though. Thanks.
Hey Shaun,
Where did you find the capital to make these hard money deals? Is this your own savings? How do you scale this up?
Some of the money I saved up, some has come from funds drawn against a HELOC. I partner with others and we combine our funds. Each person's name appears on the mortgage as a lender, so we are all protected. My partner has been making hard money loans for over a decade and he is the one who has all the contacts.
Oh I see. I have done some lending deals too and they are awesome. But the problem is getting enough capital to lend out. Say if I want to make 5k a month, then I would have to lend out somewhere around 1M depending on the spread.
Any suggestions on how to raise more capital?
Jill - there is no quick method. You can loan what you have and keep re-loaning out the income. (This is basically compound interest.) Another possibility would be to partner with others and keep a portion of the return for your services. This is actually what my partner does. Right now, he is charging borrowers 12% and paying his investors 9%. He keeps the 3% difference as payment for his services. But this does involve work, so it's not free money. He meticulously tracks payments (both from borrowers and to investors), records mortgages, researches properties, provides year-end tax statements, etc. But short of winning the lottery, this is probably the only way to have access to a much larger pool of funds within a short time.
Hey Shaun,
I am doing the exact same thing. Making the spread. The hard part is finding these partners. I just don't know how to find new partners. And as I understand it, you cannot advertise X% return as it is against SEC rules. Thank you for taking the time to respond to me. Do you have any tips on how to get more partners?
I believe the SEC rules forbid advertising investments to the general public unless you are licensed. You can offer them to friends, acquaintances, etc. (That's just my opinion, not legal advice.) I would suggest real estate investment groups in your area. If you use an accountant, let him or her know you are looking for partners. Also talk to mortgage brokers, real estate agents, etc. Basically let anyone you deal with in the real estate industry what you are looking for.
Thanks for the advice Shaun. Good luck to you!
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