New Loan Made, Another Loan Closing

First, the quick news: Hard Money Loan #23 was paid off a couple days ago. Those funds are now looking for a new home.

The other bit of news is that my funds from HML #19 have been reinvested. The new property is in a not so great part of town. If the borrower was not someone we have dealt with dozens of times in the past and whose knowledge of the area I respect, I would probably not have made this loan.

The property is a single family home in Oakland. County records list it as a 900 square foot, 1 bedroom, 1 bath unit, however, the property has two separate electricity and gas meters and a detached garage with what appears to be some added living space. Tax records do not indicate a garage or the additional living space. (While this means this could be a duplex, it also means the additions likely were done without obtaining the proper permits and inspections.) The back door has a doorbell and may indicate an entrance to a second unit. Obviously, we were not able to see the interior of the property and the MLS listing did not have interior photos. The roof and foundation appear to be in good shape, but there is some dry rot on the walls and around the windows, as well as peeling paint. Title records indicate the last owner received the property as a gift and  obtained a cash-out mortgage for $270,000 in 2005.

The problem then, is how to value this property. We've got discrepancies between what the tax records show and what the property appears to actually have. It's in a bad part of town and there are next to no comps that closely match this property. So, in addition to coming up with an estimate on his own, my partner hired another appraiser that we have worked with before to give his opinion.

Being that the neighborhood isn't that great, the location of the comps becomes fairly important. They also treated this as a 2 bedroom property for finding comps. Between the two of them, we ended up with 11 comps and you can see how widely the sales prices differ:

• #1 - $47K - REO, rehab, all cash sale. MLS listing noted some vandalism and stripped pipes.
• #2 - $30K - REO, sold as-is
• #3 - $55K - REO short sale, listed as a "fixer upper"
• #4 - $63K - REO - our hired guy said both the curb appeal and location of this property are worse than ours
• #5 - $65K - REO - another property with rooms not listed in tax records
• #6 - $86K - REO - rehab
• #7 - $130K - REO, detached garage
• #8 - $45K - REO
• #9 - $58K - REO with fire damage
• #10 - $136K - REO
• #11 - $160K - Regular sale, location is worse than our property

All the comps are 2 bedroom and have sold since April (except for one or two sold in January).

Our hired guy figures the property is worth $75,000 as-is and $110,000 after it is repaired. Our borrower bought the property at auction for $88,000. Our loan is for $63,000. Using the purchase price, our LTV is 72%.  Some other positives for this deal: Our borrower is personally guaranteeing the loan, he knows the area really well, and he has never defaulted or even had a late payment with us, the market is better than it was 6 months ago, if this really is 2 units, they would rent for $1,500 - $2,000 a month combined, and my partner's wife is also a lender on this one, so he has a vested interest in the safety of the loan. Some cons: no one else bid on this at the auction, property appears to be in conflict with tax records and extra living space might not have been built with permits, condition of the interior is unknown, bad neighborhood, and our borrower is personally guaranteeing several loans with us.

Sorry, I didn't get any pictures of the property on this one.


This property will be labelled Hard Money #25.