The other day, I was sitting at my desk talking with a couple of my coworkers when one started talking about his credit score and how it had dropped about 40 points recently. This guy subscribes to a credit monitoring service and keeps a close eye on both his credit score and credit report. It turns out, his score dropped because of a motorcycle loan he recently took out to get a new motorcycle. He got a special low rate, but must not have read all the fine print because the loan showed up on his credit report as an unsecured loan, i.e. a credit card. Now, the motorcycle company still has the title and they are listed as a lienholder on the registration, so this is really a secured loan, yet it is being reported as unsecured.
So this dropped his credit score because it looks like he now has a maxed out credit card. We were discussing how we could get this corrected. We both agreed it would be a hard task. Chances are, if he called the customer service number for his loan, he'd get someone who didn't even know the difference between a secured and unsecured loan, let alone how they are reported to credit agencies, etc. So it looked like an uphill battle to get this changed. (I should point out that he is planning on purchasing his first house soon, which is why he wants his credit score to be as high as possible.)
After thinking about it for a few minutes, I realized I could help him. I could put on my hard money lender hat and lend him the money to pay off the loan. He could then make sure the lender reported it as closed and it would not be included in calculating his credit score. He would continue making monthly payments to me. I would not report the loan to any credit agencies (unless, of course, he defaults). I offered him the same terms as his current loan: 3 years, 7.9% APR. I also charged a 1 point origination fee. He accepted the deal and today we drew up the paperwork and signed everything. I've now got another hard money loan going, my fourth one overall. I get more passive income at a higher interest rate than a bank would pay and he gets a higher credit score. Everyone wins! And, to return to something I wrote about three years ago, the point I charged means I created money from nothing again!
I should point out the obvious: I trust this guy, I know he has a steady, stable job that he has been at for several years, I know the approximate value of the motorcycle, etc. I wouldn't normally make a hard money loan with the collateral being a depreciating asset like a vehicle.
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Multi #1 First Month Report
The first month’s figures from Multi #1 are in and things look to be progressing right on track. The improvements we plan to make have been started – new signage has been installed and the re-sealing of the entry parking lot has been completed. Other improvements are scheduled for the coming months. Occupancy is at 93% and management feels that traffic has been increasing and can rise to 94% or 95% over the next month. Figures are tracking pretty close to projections. I was going to list the projected and actual amounts, but since this is just the first month of ownership, the figures will be all out of whack. The first month's expenses do not include any mortgage payments and bills have not yet come due, so those expenses will not be included either. I'll wait another month to post a side-by-side comparison, as the figures should be closer to normal by then. Investors have not received any income from this property yet, as profits are being distributed quarterly. But so far, I am happy with what I see.
Rental #1 Has Been Sold
Well, in a rather depressing turn of events, Rental #1 closed escrow last Monday and I sold it for a loss. I haven't run the exact numbers yet, but it looks like I lost about $30,000 on the deal. As always, the last day of escrow was not without its drama. This time, I got a call saying the escrow company had not received my funds that I had to wire to them to make up the difference between what was owed and what I sold it for. Those funds were wired the previous Friday. At the time, I was in Las Vegas, so I had none of my paperwork with me. I called my bank and was told the wire did indeed go out on Friday. I then called the escrow company back and before I could give them my news, they told me they did in fact, have my funds. I guess the escrow officer who was handling my case was gone that day, so someone else had to step in.
Some final items still remain to be taken care of: I called my insurance agent today and told him I sold the property. My insurance coverage will be canceled effective last Monday and I'll be getting a refund of the unused premium. I also contacted my management company. To date, I have not received any kind of statement or receipts for charges incurred. I sent them $3,000 to handle some repairs and management fees two months ago. I asked them for an accounting of all expenses and a refund of the unused funds. They said they are working on that and need to wait to make sure all the bills are paid. Truthfully, I should have been asking for this after the first month, but I knew I was selling the place soon, so I let it slide for a month.
So, what lessons did I learn from all this? Several.
But just to end things on a positive note, while I was in Las Vegas, I did do some winning. About 15 minutes after I sat down on my first day, I got this:
The rest of the day, I kept getting screens like this:
At the end of the first day, I was up about $1,600. Of course, I gave it all back, but it sure was fun!
Some final items still remain to be taken care of: I called my insurance agent today and told him I sold the property. My insurance coverage will be canceled effective last Monday and I'll be getting a refund of the unused premium. I also contacted my management company. To date, I have not received any kind of statement or receipts for charges incurred. I sent them $3,000 to handle some repairs and management fees two months ago. I asked them for an accounting of all expenses and a refund of the unused funds. They said they are working on that and need to wait to make sure all the bills are paid. Truthfully, I should have been asking for this after the first month, but I knew I was selling the place soon, so I let it slide for a month.
So, what lessons did I learn from all this? Several.
- The adage is true: Real estate is all about location, location, location. I did not make a trip out to visit this property before I bought it. I relied on another person's opinion and since that person was the seller, there was an obvious bias. Because she got it rented quickly, I assumed I would be able to do the same when it came time for the next tenant. I did not know the property was in gang territory and would be difficult to rent.
- I assumed the seller, who rehabbed this property and several others, worked the same way I worked - namely, that she had a professional inspection performed in order to see what needed to be repaired. This is what I have done on all the properties I rehabbed. I looked back through all the documentation the seller provided to me and I did not get an inspection report. Nor did I have one performed before or after I bought the place. Shame on me. Again, I assumed the seller did this and her rehab would have fixed whatever turned up on the report, especially since her husband is a contractor. The problem with the roof would have either been fixed or at least brought to my attention had this been the case. I did find the seller's disclosure statement and she indicated she knew of no problems with the roof and no repairs to it had been done under her ownership.
- Property management companies are a mixed blessing. On the one hand, they free up your time by managing your property for you. On the other hand, they won't do anywhere near as good a job as you would. Obviously, each company is different, but it seems property management companies don't work too hard to find tenants for your property, especially if you only have one single family home listed with them. Nor do they seem to care about the condition of your property. Of course, I am sure there are exceptions to these trends, but they are probably hard companies to find.
- The declining real estate market hurt the resale value. While the property location is likely the main cause for my loss, the collapse of the real estate market did not help me when I needed to sell quickly.
But just to end things on a positive note, while I was in Las Vegas, I did do some winning. About 15 minutes after I sat down on my first day, I got this:
The rest of the day, I kept getting screens like this:
At the end of the first day, I was up about $1,600. Of course, I gave it all back, but it sure was fun!
Approval Obtained!
Just heard from the escrow officer that her attorney has agreed with waive the requirements for closing and we can move forward. Docs are being emailed to me tonight. I'll sign them and overnight them back tomorrow and we should close on Friday.
It still seems like whatever title problems there are are still not fixed. We're just overlooking them now, just like we did when I bought the place. But it won't be my problem any more...
It still seems like whatever title problems there are are still not fixed. We're just overlooking them now, just like we did when I bought the place. But it won't be my problem any more...
Title Issues Still Not Resolved
Title issues are still delaying the closing of the Rental #1 sale. My title company has contacted the president of the title company I used when I bought (and when I later refinanced) the property. Turns out, he had waived some requirements when I bought the place, presumably to allow escrow to close. I'm sure the intention was to then go back and fix the title issues (even though I was told they were all resolved). That apparently never got done. So now the president is supposed to give my current title company an indemnity letter so we can close. But the current title company's attorney has to approve it before that can happen. We are also checking to see if the attorney will waive the requirements also so that we can close.
It seems recording titles in Oklahoma is just one big shell game and it doesn't really matter what is recorded on the actual title says, since escrow companies can just waive requirements at will. If this is not resolved quickly, I will start threatening lawsuits and will start trying to get the original escrow company's license revoked.
It seems recording titles in Oklahoma is just one big shell game and it doesn't really matter what is recorded on the actual title says, since escrow companies can just waive requirements at will. If this is not resolved quickly, I will start threatening lawsuits and will start trying to get the original escrow company's license revoked.
Title Issues Delay Closing
Does anyone in Oklahoma know what they are doing? I just heard from my title agent that there are two issues with the title to Rental #1:
- There is a previous mortgage listed in the names of some people I've never heard of. Why is this being discovered now? This should have been discovered when I first bought the property or again when I refinanced the property - two previous occasions when title work was performed on this property.
- The private mortgage that one of my companies made to another is showing up as a second mortgage. Not only is this incorrect, that mortgage was paid off through a refinance about a year ago.
