Monday, May 06, 2013

New Loan Started, March Apartment Update

I've started  a new hard money loan on a property in Richmond, CA. This is a 4 bedroom duplex, 2 bedrooms and 1 bath on each side. Each unit is 600 square feet for a total property square footage of 1,200 square feet. Each unit has an attached one car garage. There is at least one tenant in the property (my partner was unable to see the interior of either side). The property was built in 1960 and is on a 3,750 square foot lot. There is a train track nearby and my partner said he could hear the train as it went by, but he thinks it might not be audible from inside the property.

Surprisingly, there are several duplex comps within a 1 mile radius. They sold for between $140,000 (REO sale, slightly smaller property) to $215,000. This property was purchased at auction for $176,000. The opening bid was $117,000, so there was a lot of interest in this property and the price was bid up nicely. Our after repaired value estimate is $220,000 with a current value estimate of $170,000. (Yes, our current value estimate is lower than the purchase price.) Our loan is for $120,000, giving us a 71% loan to value ratio based on the current value. We also estimate the units can rent for $700 a month each, which would be a $1,400 monthly income on a $120,000 investment, should we have to foreclose. Not bad. Our borrower is someone we have worked with a couple times before. He has always paid on time. He works for our biggest borrower and is starting to build his own business of rehabbing foreclosed properties. He is personally guaranteeing the loan. I'll refer to this property as Hard Money #27.

In other news, the March numbers for the apartment complex are in. Rent income increased by $2,000, occupancy rose. Total revenue dropped due to lower utility billbacks, and operating expenses declined. All those factors combined to give an increase in Net Operating Income over last February by almost $3,000. Management expects revenue to continue to increase going forward. For the first three months of this year, the property is cash flow positive, although it is still below the budgeted cash flow amount.


dchamber said...

How do you fund your deals?

I would like to do something with my retirement account. I have a small Roth and a larger SEP that is currently self-directed at AmeriTrade.

I have done one flip and I have 18 rentals. I think it is best to keep the rentals outside of the retirement account so I get depreciation. However. I would like to do a few more flips with my retirement money, or lend it to other investors.

Do you have any tips on using retirement funds?
I am not sure how to get started.

Shaun said...

I have a self-directed IRA that I use to lend money as a hard money lender. Search this blog for posts with the label "self-directed IRAs" and you'll get everything I've written about my experiences with setting them up and working with them. To do REI with an IRA, you basically have to create an LLC where the IRA is the owner. Then the LLC does the lending, flipping, whatever you decide to do. But there are strict rules about what you can and can't do. For instance, you can't pay yourself a salary from the LLC. I choose to just do HML from my LLC because it's really straightforward - interest income comes in, I loan money out. I never have to purchase anything (well, except for P.O. box rent) or reimburse myself for expenses. I keep it very clean in case I'm ever audited.

Pie said...


Do you use Hardmoney on this property for long term, like 15-20 years? Typical Hardmoney to me is 6 month-1 year max around here on the east coast. I am curious what is your terms on this one.

Thanks for sharing your experience!


Shaun said...

Pie - I am not the borrower. I am the lender. And yes, the loans I lend on are typically for 1 year or less.

Mobile Home Gurl said...

The duplex sounds solid especially since you're working with a borrower that you've worked before. It's good the apartment complex is cash flow positive — it's been an interesting read following the updates. Nice to hear your progress, Shaun!

Shaun said...

Thanks, MHG. I know you've been a reader for a long time!

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