OK, I know last time I said I was done updating this blog, but I just wanted to pass on one more bit of news:
My eBook, which I was previously selling myself, is now available exclusively for the Kindle via Amazon!
I've dropped the price down to $3.49. If you are a subscriber to Kindle Unlimited, the book is available for free as part of your subscription. If you are an Amazon Prime member, the book is available for free as part of that service via the Kindle Owner's Lending Library.
First off, for those of you that were wondering, this is the apartment complex I was investing in.
My distribution check arrived yesterday. I got the return of my principle and all of the accumulated interest since the last payment. Looking back in my records, I see that I received five payments in the first year after we bought the property, then nothing until now, as the economy soured and investor distributions were halted. So, if I've done my math right, factoring in those previous payments with what I received today, I earned an annualized 9.05% return over the 6 years that I was invested in the property. Another way to look at it is I earned a 55.05% total return. That number may inch up a bit after the investment company is closed and the funds that were held back for expenses are released. (The number is slightly elevated from preferred 9% return because back in August 2008, we earned some interest while our funds were sitting in the bank waiting for the initial purchase to be completed.)
Our investment agreement with management specified that the investors receive a preferred 9% return. This means that, on sale of the apartments, all profits would go to the investors until they received an annualized 9% rate of return. After that, the profits would be split 50-50 with the investors and the management company we used (or 70-30 in the investors' favor if the property did not reach a specific ROI goal). When I first invested in the property, I did so with the intent that this was an investment more for capital gains, rather than the 9% return. Things obviously didn't go they way I planned in that regard, but that doesn't mean I'm disappointed. A 9% return is nothing to sneeze at - that is also the rate I earn right now on my hard money loans. Originally, I had hoped for a return in the 30% range and, had the economy not tanked, I think this was possible. Actually, with the way the property has been performing the last 9 months or so, I think if we held off on the sale for another year, we could have come close to that figure.
So why did we sell now? The main reason was that the majority of other investors wanted to sell. They likely got sick of the lack of quarterly distributions. Additionally, the property was getting to the point where additional funds would be needed to add improvements and do an overall facelift of the buildings - similar to what we did when we bought it. That would mean another cash call to investors and I don't think people were willing to pony up more money. In fact, I know the new buyers are planning on spending about $1 million on improvements.
For the sale, we had offers from two buyers. One was an unrelated party and the other was the current management company. The management company was the winner. I was a bit concerned about a possible conflict of interest here when I found out they were one bidder because, obviously, the management company knew the details of our investors agreement. This meant that theoretically, they could figure out exactly how much to offer to exactly meet our 9% return and not offer a penny more. Of course, it also meant that, due to the nature of the agreement, any amount they wanted to offer above that amount could basically be doubled - because they would get half of that amount back at closing due to the 50-50 split clause. This would make their offer much more attractive than another party's at a lower cost to them.
But in the end, that wasn't why they won. They got the sale because they were willing to assume our loan. The other party was not going to do that. Our loan had a $1.5 million early termination fee, so the assumption saved us a ton of cash. It was also what delayed the closing for a couple months. We had to get approval from the lender for the loan assumption.
All in all, I'm glad I made this investment. It was a great learning experience. Apartment investing is really more like investing in a business than real estate. I would definitely do it again in the future, but probably not soon. Right now, I'm more interested in cash flow and I think my hard money loans are providing a more consistent return.
I received word that the sale of our apartment complex finally and actually closed on Friday. Hooray! Our group of investors received net proceeds of $4.39 million on the sale. (Note this is net proceeds, not profits!) Four million of that is being distributed to us next week, with the rest of the funds being held back to cover any remaining company expenses that might come up during the closing of the company formed for the investment. Any funds left after that will then be distributed to investors. We made enough to cover our preferred 9% return.
I'll post a more detailed analysis of the final investment returns once I receive the check. However, I'm also going on vacation next week. Even if I receive the check before I leave, I doubt I'll have time to do a write up before I go, so the final report on this investment probably won't happen until the beginning of July.
As I mentioned last time, the sale of the Houston apartment was supposed to close a week ago yesterday. I've been out of town until today and did not have anything waiting in my email or postal mail when I got back, so I sent an email asking for a status update. I heard from the manager about 5 minutes ago and the sale is supposedly closing today. I'm not holding my breath, but since the day is half over and I'm still being told it will close today, I am slightly more hopeful than I might be otherwise.
It appears the sale will be finalized now on June 5th. We have received approval of the loan assumption, which was what was holding things up for the past several weeks. Management has said they are now in the process of preparing the closing documents for close of escrow on the fifth.
Nice..This will close a few days before I head to Las Vegas :-)
It's very late this month, but the March numbers for the Houston apartment complex have arrived. Occupancy remained at 96%. Total revenue rose to $204,000, up slightly from February's $201,000. Total cash flow for the month was just over $23,000. This is the highest it's been this last November, when it hit $25,000 and almost double what it was last month. Where did the extra money come from? Rent concessions were down about 40% over February and our apartment turnovers expenses dropped from almost $4,000 to about $700. Repairs and maintenance costs and utilities costs were also lower. The property is currently running about $49,000 ahead of the budgeted profit for the year. That's good news. It almost makes me wish we weren't selling it.
Based on the numbers, it would appear the Houston area economy is turning around. Rent concessions are down, bad debt write offs have dropped, bad debt collection increased, and apartment turnover expenses dropped sharply (meaning people aren't moving out as much).
Speaking of which, the closing date for the sale has been pushed back until mid-May for no other reason than the loan assumption process is proceeding more slowly than anyone thought. Management says all is going well and they don't foresee any material issues arising that might jeopardize the closing.
Things continue to cruise right along at the Houston apartment complex. Occupancy remained the same as last month at 96%. Total revenue was $201,000, a small decline over January's $204,000. Cash flow was a positive $12,000 for the month. The $6,000 drop in cash flow over January was due to our lender not collecting the appropriate amount for escrow. They need to collect a bit extra for a while, then the escrow amount will drop back to normal. The good news is that, even with the temporarily increase escrow collection, the property's cash flow is still $27,000 over budget. Granted, it's only the second month of the year, but that's a good sign.
No word on the sale of the property, which I am taking to be good news. It's in escrow and things are, I assume, moving along without major problems. I believe it's scheduled to close escrow mid- to late- April.
First off, my hard money loan #30 was paid off a couple weeks ago. This only lasted a couple of months.
On the apartment front, occupancy was at 96% for January and the total revenue hit almost $204,000 - the highest ever. Cash flow was a positive $18,000 for the month. As mentioned last month, there was a fire at the property around Christmas time. The insurance adjuster and an engineer have been out to examine the property but we have not yet received their report. The year is starting off well and with just one month under our belt, our income is already almost $17,000 over budget.
Which brings me to the next point - the possible sale of the property. It's looking good so far. The buyers have completed their inspections and the bankers are now working on going through the process of getting the buyers approved to assume our loan. Once that is done, the sale can progress. At least point, we are estimating a close of escrow around the middle to end of April.
The December numbers just came in. Occupancy continued at 94% and revenue stayed about the same as last month. Next income dropped by about $11,000 to $14,000 however, due to an escrow analysis from our lender which discovered we needed to be putting more into our escrow account for insurance. This resulted in about a $6,000 increase in our monthly mortgage payment for the month.
We also found out the property suffered a "fairly significant fire" the first week of January, caused by a dry Christmas tree. Four units were destroyed and there was damage to the entire building, which contains 18 units. Thankfully, there were no injuries. An insurance claim has been filed and management expects full coverage, not only for damages, but also for rent loss until the building can be repaired and re-rented.
The escrow increase is a disappointment. That represents a 25% chunk of our monthly net income. No word on if this is a permanent increase, or the lender needed a lump sum to bring the escrow account up to a certain level and the regular monthly increase will be smaller. But, as the fire shows, insurance is needed.
Rent concessions almost tripled in December over November, but that's understandable, given it is a big holiday month and people likely need some encouragement to move during the holidays. I know I would.
For the entire year of 2013, the property ended up with a positive net income of just over $150,000. That's about $135,000 over budget. It looks like this was the turn-around year for the property.
I've actually had the November financials for the Houston apartment sitting in my inbox for a couple weeks. The December ones should be arriving any day now, so I've been putting off writing anything so I could write a single post for the combined two months. Well, the December info isn't here yet, so I figured I better get something out for November before it falls too far in the past.
Occupancy remained at 94%. The property had a positive cash flow of a tad over $25,000 for the month. This is actually the highest monthly cash flow of the year, beating out August's number by just over $100. Rent concessions dropped. Our overall income for the month increased by about $2,000 over October.
On the other hand, expenses also increased over October - but only by about $1,000. We saw increases in marketing, apartment turnover, and repairs. These were partially offset by a large decrease in administration expenses.
Management says the last 10 months of positive cash flow have allowed us to pay off $100,000 of aged accounts receivable over the course of the year. Now our balance sheet shows our accounts receivable greater than our accounts payable, so we look to be finally rid of all those old debts we accrued during the bad years. The property is currently $124,500 over our budgeted net income for the year. That's good news.
No word yet on the potential sale of the property. One of the potential buyers requested a four month or so examination period and we're still in that, so I suppose this is a case of no news is good news. I hope we get an update with December's numbers, but we may not.
