Wednesday, February 29, 2012

Hard Money Loan #23 Started

I started a new hard money loan this week, bringing my current outstanding loan count to 4.

This one is on a single family home in San Pablo. It is currently occupied. It's a 2 bedroom, 1 bath, 856 square foot home built in 1950. The roof and foundation look to be in good shape and, other than the garage, the paint is in good shape. We were unable to see the inside of the home, but pictures of the interior on MLS show it seems to be in good shape. The landscaping is in good shape too. It appears to have newer windows and the kitchen has been redone with granite and stainless steel appliances.

The property was listed as a short sale on the MLS at $175,000. There is another property down the street, similar in size and condition, that is also listed as a short sale for $175,000. It sold in seven days, but we don't know what the actual contract price was since it was a short sale. The neighborhood is just OK. My partner's helper rates it a "C". The property is near a large regional park, so there aren't many nearby houses for comps. The original owner bought the property in 2004 for $378,000. There was competition at the auction for this property, so other investors wanted it. Our borrower got it for $129,000. Our loan is for $105,000. We conservatively are valuing it at $160,000. That makes our LTV 65.6%. My investment in this property is smaller than normal, since it's being done with funds from my daughter's UTMA account, as I mentioned a couple weeks ago.

My other loans continue to pay on time. Ho hum.


ruchbum said...

looks like a good deal shaun. best of luck with this HML

Don said...

Look like a good deal. Do you loan the entire amount initially, or give draws as work is done?

How long do you anticipate before the is paid off?

Shaun said...

We loan the entire amount. This isn't a construction loan. It's a mortgage.

thewealthyicelander said...

I'm curious

What are the pros of using a hard money loan as opposed to getting a regular mortgage? I would think that hard money loans would usually have higher interest rates

Is it problem with credit?

Shaun said...

Traditional mortgages require a credit check and can take months to close. The amount borrowed depends mainly on the borrower's income. Hard money loans are typically made solely on the value of the property and can be funded in as a little as one day. When you are buying properties at foreclosure auctions, you need to pay in full, in cash, the day of the sale, so a traditional mortgage is not an option. And yes, the interest rates for HMLs are typically higher than standard mortgages. Terms are also much shorter (1 year or less) and payments are typically interest only.

Steve said...

Your market seems a bit different than mine (higher). Maybe all that extra money is tied up in the granite :). Anyway I do have a question which is what kind of interest rate are you able to get these days on your hard money loans? I have been in tax certificates, but that has gone down the dumper in recent years since they started putting it on the internet.

Shaun said...

We've been charging 12%, interest only payments, for a couple of years. We used to be able to charge 14%, but when interest rates dropped so low, we had to lower ours a bit.

What's your experience with tax certificates? I remember reading about them years ago, but never did anything with them.

Steve said...

My experience is that I invested in Florida in my home city of Jacksonville since I knew people in the office and the city couldn't get rid of all of their certificates, anyway. This means that a lot of them could be had with 18% interest and they almost always paid. Then things went on the internet and the banks started bidding all of the decent properties at .25% interest and had thousands of surrogate bidders for them as well. Since the winning bid was chosen mainly by chance like a lottery, an individual's chances of getting something decent was about the same as winning the lottery. Mostly the city sold out except for the underwater stuff (no misprint). Now you know the reason for the question.

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