Hard Money Loan #28 Started

The funds from my last loan that closed have been reinvested. This one is a single family home in San Pablo, CA. It's not in the best neighborhood, but the house itself isn't too bad.

The house was bought at auction for $151,000. Our loan is for $94,500, giving us a 62% loan to value ratio. The buyer plans to put $20,000 in remodel work into the property. We estimate the after repair value to be $190,000.

The property is a 1,050 square foot single family home, 4 bedroom, 2 bath. It was built in 1954 and has a single car garage. It sits on a 5,800 square foot lot. Behind the house is a raised train track and beyond that is the San Pablo Bay. Comps sold for between $160,000 and $170,000 within the past year. The $160,000 comp sold in one day and the $170,000 one sold in less than 1 month. There was only one other home recently for sale and it also sold very quickly. As a result, our borrower is going to try to get top dollar and will list it for $225,000.

The pros of this deal are:

1. It's a short duration. The rehab is mostly done.
2. There were multiple bids at auction for this property, meaing other investors thought it was a good deal.
3. The area is a seller's market right now.
4. The LTV is 62% - much better than our normal 75%.

The cons:

1. Elevated train track behind the house. Could be very loud, but the borrower says inside it isn't bad.
2. Not the best neighborhood.

This loan is going to be a very short duration. The borrower did not ask for a loan until about 1.5 months after he purchased the property. (He needs funds now to move on to another property.) The rehab work has now been completed and the property should be listed in about 7 days. The borrower put in a new water heater, carpet, and garage door, along with other miscellaneous items.

The borrower works with our biggest borrower and has had about 7 loans with my partner in the past. He's paid all of them on time.

June 2013 Apartment Results

Things continue to look good at the apartment complex in Houston. Occupancy climbed 1 percent to 96%. Total rent collected was almost $165,000 - the highest total since 2009. Total income stayed around $192,000, the amount it's been hovering around since April. Expenses were normal and there were no large, unexpected expenses during the month. The best part is that the net operating income was almost $87,000 for the month and the highest figure year to date. Total cash flow was $19,000 - also a highest year to date figure.

Digging into the details of the financials, I can see rent concessions dropped by $6,000 over May, although write offs of bad debt increased by a similar amount, so that was a wash. Administration expenses dropped by $2,000 and utilities expenses dropped by $3,000. Everything else stayed pretty much the same as in May.

Compared to the budgeted numbers, we are looking good. Our income numbers for the year are $11,000 over budget, expenses are $36,000 under budget, resulting in a net $25,000 income over budget for the year.

Things are looking good and I'm becoming more hopeful that we will be able to sell the property at a significant profit towards the end of this year or beginning of next year.

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.