HML #30 Started

Things have picked up lately. After a period of low activity, it seems our borrowers are now once again buying properties. My partner has five loan requests to evaluate. Here are the details of the one I invested in.

This is a vacant single family home in Vallejo, California - in the San Francisco Bay area. It's a 1,310 3 bed, 2 bath home with an attached 2 car garage. It was built in 1994 and it sits on a lot just over 6,000 square feet. The front exterior of the property looks nice, although the back needs some work. Some landscaping needs to be done and, in fact, there were landscapers there working when my partner went to look at the property.

The borrower is our biggest borrower and he purchased the property for $141,000 at a foreclosure auction.The opening bid was $132,000, so others wanted this one as well. Zillow.com estimates the property to be worth $180,000. Based on MLS sales of comps, my partner estimates it to be worth $225,000 as-is and $265,000 after repairs. There are five good comps in the MLS. Four of them were short sales. Three of the five sold for more than the listing price. One of the comps is from May and the rest of 3 months old or less. All sold for higher than their Zillow.com "Zestimate." (Really, the only usefulness of their estimate, IMHO, is to get a ballpark figure of value. I'd never use it as a basis for REI analysis.)

My partner gives the neighborhood a not so good rating, but that normal for this borrower. He specializes in those areas. In terms of the loan, we are lending $105,000, giving us a 74.5% loan to value ratio using the auction buy price. Using our as-is estimate of $225,000, it's a LTV of 46.7%. The biggest drawback to this loan is that it is in an area we don't normally lend in and that our borrower doesn't usually buy in, meaning we could be off on our value estimates.

Here are some pictures.

 

Funny Article

I was reading some news stories that mentioned one of the REIT stocks I own, and came across this piece on The Motley Fool. Now, given the source, it's somewhat obvious that it will be biased towards stock ownership over rental property, but I thought it did provide a good example of what the typical first time landlord thinks - not too concerned with cashflow, relying on appreciating property values, no thought or budgeting towards maintenance costs, etc.

Houston Apartment October 2013 Update

The numbers for October are in and things are still looking good. Occupancy remained at 94%. Rental income reached a high for the year, coming in $1,000 over September, which was the previous high for the year. Overall income dipped slightly due to some higher administrative expenses that consisted of once time charges. Year to date, the net income for the property is $100,000 over budget. (!)

As I mentioned before, the property is up for sale. I had a talk with the managing partner (of our investment group, not the property) a while ago and he mentioned that the property does need a little bit of work to bring it back up to being a highly desirable location for tenants (which isn't to say it's a pit right now). We did some renovation when we bought the property, but with the multi-year economic downturn, management didn't have the funds to keep adding amenities. As a result, at least one of the potential buyers we are talking to has indicated they plan to put about $1 million into improvements if they end up as the owners. That's good news for the tenants. Of course, now that the property is performing well, we have the option to not sell the property and invest in making improvements ourselves. However, that would require raising additional capital from the owners (us) and our managing partner told me he spoke with the largest shareholders in the property and they did not want to invest any more money. So the property is up for sale. I can't really blame them. I also miss getting the quarterly distribution checks and can understand wanting to get back into something that produces income on a regular basis.