May Apartment Update

The May results for the Houston apartment complex are in and the good performance of April has continued through May. Occupancy remained at 94%. Positive cash flow was $8,700, a noticeable improvement over April's $7,500 (which was pretty good itself). There are still some legal issues with some vendors that are increasing the administrative expenses for the month and, once again, management says these are at reduced levels compared to the past and they should be decreasing.

Rent concessions increased by about $4,000 over last month, but the loss due to vacancy decreased by about $7,500. We did have to write off almost $6,000 in bad debt compared to no write-offs last month, but we also recovered $1,000 of bad debt. Our total income was just about $1,000 less than April.

Expenses for marketing dropped, as did those for capital improvements / replacements. This is what drove our bottom line higher than last month's.

We are still running in line with the budget. We're about $3,000 over budget in income for the year and $27,000 under budget for expenses. Unfortunately, we're also $22,000 over budget for capital improvements / replacements. But overall, the property is $8,000 over budget for net income, so I really have no complaints.

Well, that's not entirely true. I do have one complaint. Management seems to be very poor at handling investor's questions via email (or at the very least, at handling my questions). Last month, when I read the news about the ongoing legal costs for vendor issues, I sent them an email asking about how many issues were still outstanding. I got no response. After reading the May results this morning, I sent them another email asking the same question. I'm also somewhat bothered that it appears t be taking longer and longer for them to get the monthly reports out. I believe back when this investment started, the monthly report would be sent out maybe 2 or 3 weeks after the end of the month. Lately, it has been coming 5 weeks or so after the end of the month.

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.