April Apartment Update

I returned from a quick trip to Las Vegas to find the April financials for the apartment complex in my email. Things continue to improve!

Occupancy is up to 94% and the property reached a couple new milestones: we had the highest monthly revenue since September 2009 and the highest net operating income since August 2009. The property had a positive cash flow of $7,500 - this is over twice last month's NOI and management expects this number to continue to increase in the coming months. Rent concessions dropped to the lowest point since January. The increased occupancy translated to the lowest vacancy expense this year. Bad debt losses were zero (!) and we recovered close to $1,000 in previously recorded bad debt.

There were still some expenses due to legal costs incurred from vendor issues when we had to delay payments for several months in 2011 and 2012, but those are greatly reduced from prior months and hopefully, the end of those expenses are in view.

Budget-wise, the property's net income for the year is about $1,500 ahead of budget. Clearly, apartment complex financials are closely tied to the performance of the local economy. That might be stating the obvious, but this whole process has helped me see just how true that is. This is something to keep in mind when investing in apartment buildings.

It's hard for me to believe I've been in this investment for over four years now. If this improvement continues through the rest of the year, I think we'll be on track to sell the property for a nice profit early next year!

UPDATE: Forgot to mention that hard money loan #24 was paid off on May 31st, so that money is waiting for another deal.

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.

Is The Term "Master Bedroom" Politically Incorrect?

I came across this article today that says the term master bedroom is being phased out of real estate listings due to its connotations of gender and race inequalities. It's being replaced with terms like owner's suite or owner's bedroom.

Is anyone else out there noticing this?

March Update

I've been away for a couple weeks on a cruise to Hawaii. Got back and found out my hard money loan #22 finally got paid off. This was 5 months overdue, but since the borrower is one of our biggest clients and he was still making payments on time, we didn't call the note and opted to let him pay it off at his leisure. The property was under contract for sale two or three times, but fell out of escrow each time, I believe because the buyer's lender would not consider this a valid property for a conforming loan. The unit was a triplex and those are normally considered conforming (i.e. non-commercial), but apparently in this post-real estate bubble world, lenders are being more strict in what they define as conforming. Our client ended up keeping the property himself and renting it out. He did a re-fi to pay us off. I'll be adding some money to the principle return from this loan and am looking for a new property to loan on.

My other three hard money loans continue to pay on time.

The financial results for January for the Houston apartment complex came in. The property showed a loss of about $6,500 for the month. This is very disappointing, considering how things appeared to be turning around in December. The silver lining is that the loses in January were due to one-time expenses. We had to pay a vendor almost $4,000 for work done 4 to 5 months ago (we had been delaying paying the vendor until the property's cashflow improved), there was a bed bug infestation that required pest control treatment costing close to $1,000, and several fees related to health and fire permits and loan reserves processing by our lender were paid. We had to replace a hot water boiler that failed, although this $14,000 cost will be reimbursed from our capital improvements escrow account with the lender. If you exclude the boiler and one-time items, cashflow would have been a positive $11,000 for the month.

February's figures should be coming in soon. I'm looking forward to seeing how things went that month.

2012 Year End Apartment Update

I'm getting a bit behind the times here, but here's the 2012 year end results for the Houston Apartment complex.

December was another good month for the property as things continued to improve. The property had the highest total income amount for the year at just over $186,000. Operating expenses were a bit on the high end, due to some legal bills over the delayed payments we had over the past year. Even with that, they did not reach the highest monthly expense amount of 2012. These two things resulted in the highest monthly net income for the year. Actually, this is really the highest because we had one month where the figure was artificially inflated due to an insurance reimbursement of $30,000. We had a net income of almost $16,000. This was enough to push the property into the black for the whole year to the tune of about $29,000! This is almost $44,000 ahead of the budget that was given to investors during the cash call at the beginning of the year.

Rents are trending upwards at about 2% annually and our rent concession figure rose only marginally from last month. Losses due to bad debt dropped 40% from last month.

With the improvement in the property's finances and assuming we continue to stay on budget for 2013, management believes we can begin to look at selling the property sometime in early 2014. We're looking to sell in the $15 million range (we bought the property at around $12 million). If this can be done, the annualized return on investment to investors would exceed the 9% we were guaranteed.Looking back, it appears management has a fairly good handle on budgeting and any surprises tend to be on the good side. At the start of the year, their budget called for the property to lose money each month through June and finishing the year with a small loss. In reality, the property ended up losing money each month through May and finished the year with a slight gain.

In other news, my four hard money loans continue to pay on time. One property was up for sale, but that fell though and it looks like now the borrower is going to keep this for himself and convert it to a rental. That loan is close to coming due, so it should be paid off soon.