Apartment Update

Received the November report for the Houston apartment complex and it was not good. Occupancy has dropped to 89% with 26 move-outs, 12 of which were without notice. So rent concession costs increased to fill the empty units. Expenses are still going lower, which is a small positive. Some exterior wood replacement needed to be done that cost $31,000 but that was paid directly from the replacement escrow account with our lender, so it did not affect cashflow. The manager's report includes this ominous phrase: "...outstanding aged accounts payable continue to place considerable strain on property operations." Total revenue for November was $175,000 and the balance sheet shows $233,000 of Accounts Payable, so yeah, I can see that would cause a strain.

Truthfully, I am getting tired of this investment. I don't think the investors have gotten a payment in over a year. I know the problem is high unemployment and the soft economy, but it gets pretty old hearing month after month that the place is just limping along. This investment was made with an eye towards capital gains, not monthly income, so I need to keep that in mind. Still, it is somewhat frustrating to know there is little that can be done to turn things around. I guess I am still used to the rehab mindset of being able to improve a property and sell it.

I'm starting to see why my hard money lending partner likes lending so much. Rentals require dealing with tenants and repairs, etc. Investing in apartment complexes does too, although a management company keeps those factors one step removed from the investor. Hard money lending on the other hand, is relatively hassle-free, once you have a set of good, regular borrowers lined up. Lending also lets me spread out my investment over several properties, reducing the risk from any single one. I think once this apartment investment ends, I'll stick to hard money lending. You do lose out on all the nice depreciation deductions and tax-deferral options though.

And Now For Something Completely Different

I wasn't going to write about this, but since it's the holiday season, I figured now would be a good time.

About a year ago, I came across Kiva.org, a microlending site. It's similar to Prosper.com in that it works by people lending money to other people. The difference is the other people are in third world countries and are taking small loans to help improve their situation by opening or expanding a business. Kiva charges no fees and 100% of the money you lend goes to the borrower. Like Prosper, you can search lists of people looking for loans and select the ones you want to lend to. But, and here's the reason I originally wasn't going to write about this, the lender (you or I) gets no interest. There is no return on investment for the lender other than the satisfaction of helping someone in another country improve their lot in life.

Kiva works by teaming with field partners in various countries who are the ones who actually fund the loans and collect payments. More information can be found here. The borrower does pay interest on the loan, but that is kept by the field partner.

As with Prosper, there are risks - namely that your loan won't be repaid. Additional risks involve currency exchange rates, political unrest, and all the other risks that come with investing in another country. But Kiva lets you start lending with as little as $25, which is what I've started with. If my loan defaults, I'm only out twenty five bucks. I can handle that. I've made one loan so far to a woman in San Salvador to expand her business of selling cosmetics and small household appliances. The loan was for 20 months and is 55% repaid. My sister-in-law has been lending through them for a couple of years and has made 3 or 4 loans so far.

If this sounds like something you are interested in, please check out Kiva.org. Have a happy holiday season!

Hard Money #22 Started

It took just about a week, but my funds from HML #17, which closed on the 21st, have found a new home.

Our best borrower picked up a triplex at a foreclosure auction. The property is in San Lorenzo, California and went at auction for $331,000. Our loan is for $210,000. The property square footage is about 2,600 although the MLS listing for it does not give a square footage.

As we did with the last property, we pulled comps using both residential and income property searches on the MLS. Income property comps show up at $315,000 for a 4-plex that is smaller than the subject property and another 4-plex listed at $725,000 but that's bigger than the subject property. There is a triplex that sold recently for $329,000 that was smaller.

On the residential comp list, we had about 12 properties, all that were smaller than the subject and all on smaller lots. Highest priced one sold for $335,000.

Based on rents of single family homes in the area, my partner estimates the monthly rental income to be about $1,200 per unit. (The subject property is really a single family house with a duplex in back.)

Our borrower estimates the property to be worth $500,000. I'm not sure how he gets a figure that high, but he knows the area better than me and comps are pretty hard to come by, as usual for triplexes. The property has tenants in place and they have indicated they want to stay. We have not seen the inside, so we don't know the condition. The roof appears to need some work. Our borrower has experience in the area - he actually rehabbed the property right next door, which is a 1,000 square foot SFH that he sold for $280,000 back in August. My partner was his lender on that project too (although I wasn't).

Our LTV based on the sales price is 63%. Should we have to take over the property, we'd get an income-producing property generating about $29,000 per year for $210,000. Not bad. Our loan terms are our standard - 12% interest only loan, 1 year term. And with this deal, all my funds are fully invested again!

Hard Money #21 Started, #17 Closed

Well, since the last loan fell through due to the property owner filing bankruptcy prior to the foreclosure auction, I had some funds available for a loan. Luckily, my partner found a good one fairly quickly.

This is an occupied duplex in Hayward, California. As it's occupied, we don't have any indication of the state of the interior, but the exterior looks to be in good shape and looks to be well maintained. The building is about 2,100 square feet and was built in 1957. It's got a 2 bed /1 bath unit and a 1/1 unit. The property was listed for sale back in 1999 for $280,000 but it did not sell. The comments in the listing indicate there is a studio behind the main building, so this might actually be a triplex. However, as we are unable to verify that, we are evaluating it as a duplex.

Rents total approximately $2,000 a month, although this is not confirmed. (Figure is based on the old MLS listing trying to sell the property in 1999.) The sell price at the auction was $233,000 - the opening bid price. Our mortgage is for $137,000. My partner pulled comps for both residential properties and income properties. Comps are a little spotty, as there are not many similar properties nearby. The city is average, but the property itself is close to Castro Valley, which is an above average city, so that will help the property value. Comps vary from $270,000 to $600,000, but there are none that are a good match. Our conservative estimate of value is $275,000, but my partner thinks that could be off by $50,000 in either direction. The buyer, our good customer again, thinks it's worth $325,000. Overall, this actually appears to be a safer investment then the one that was canceled last week.

Pros: Borrower is our good customer who typically pays early. He's got a well-established history of success and paying on time. He is personally guaranteeing the loan. Based on the sales price, our LTV is 58%. If we had to take over this property for non-payment, we'd get an income-producing property generating about $2,000 a month on a $137,000 investment. That's a pretty good worst-case scenario.

Cons: Our borrower is personally guaranteeing over 40 loans. It's unclear what the current leases are and what the interior condition is. Comps are hard to come by. If we had to foreclose, duplexes take longer to sell.No one else at the auction bid on this. Do they know something our buyer doesn't?

After going over the 10 pages of documentation my partner sent me, I decided to go ahead and invest in this one. This one I'm labeling hard money #21.

In other news, hard money loan #17 was paid off on Friday, so those funds are now looking for a new home. Back in May, when we made the loan, we estimated the after-repaired value of the property to be $195,000. The actual sales price was $210,000, so our estimate was pretty conservative. No problem with that, but I just like looking at how our estimate compares with the actual sales price. The borrower was a new customer for us and it's good to see he seems to know his stuff.

HML #20 Started - Possibly (Updated)

I've been falling a bit behind on my blogging here. A hectic pace at work and a recent battle with the flu have been sucking up all my time. But today I managed to squeeze out a few minutes so here's the latest...

Back in the first week of October, my partner found another property to lend on. This is a single family home in San Leandro, California. The exterior looks to be in good shape, but the property is occupied, so we don't know what the inside is like. The location is not that great - it's near a freeway offramp. The property was purchased at auction for $197,500. The opening bid was $170,000. The buyer is one of our best customers and is personally guaranteeing the loan. He normally pays early.

Comps are hard to come by for two reasons: First, there aren't many in this area. Second, there is some confusion about the actual square footage of the house. The MLS listing says it is 1,080 square feet, but county tax records say it is 880 square feet. Using the lower figure, we estimate the value to be between $200,000 and $225,000. There is a comp that has the same square footage (880) but has a better location that recently sold for $275,000. How much is location worth? $50,000?

Our loan is for $136,500. Using the lower comp value, this gives us a LTV of 68%.

I went ahead and invested in this one, mainly on the reputation of our borrower. Found out on Friday that the owner is claiming he filed bankruptcy before the auction. This happens with about 5% of the properties at auction and I'm surprised it hasn't happened to use before. No final resolution yet. The next step will be the trustee will have to examine the auction documents and the bankruptcy documents to see which was filed first. If indeed the bankruptcy was filed first, we get our money back, the sale will be voided, and the house still belongs to the old owner.

Update: Turns out, the bankruptcy was filed before the auction, so the sale has been voided and our money has been returned.

Latest Update

Got a request from an escrow company for a payoff amount on hard money loan #17, so that should be closing soon. Another short loan - just 5 months.

Got an update on the Houston apartment complex a couple of weeks ago for the month of August. It wasn't a good month. Our occupancy stayed stable at 93%, but expenses were up. The main culprits were higher utility bills during the summer - water and electricity are running about $10,000 more per month than they cost in the winter months. The good news here is that those bills should start declining. Management has said the September bills are running about $7,000 lower than August.

Another expense was an "extraordinarily high" number of counter top resurfaces for the 22 units that were turned over. Not sure if these were just really destructive tenants or if these units were just getting to the point where this needed to be done after several tenants had lived there. And, as mentioned previously, our loan payment has switched from interest only to principle and interest, so our mortgage went up. All these factors combined to create a negative $18,000 cash flow for the month - the largest monthly lost so far this year. And for the year to date, the property has a $10,000 loss. Unemployment in Houston is creeping up again and management is warning that we may start seeing higher turnover as tenants move out due to lost jobs.

HML #18 Closed Yesterday

Supposedly HML #18 closed yesterday. My partner should see the funds hit his account today. This was a pretty short loan - only 3.5 months! On to the next investment!

Hard Money Loan #19 Started

My loan #16 was paid off last week, so my partner was on the lookout for a new loan to make. He found one almost immediately. This new property was bought at auction by one of our regular borrowers. He was the only bidder. He got the place for about $63,000. My partner estimates current value to be about $95,000 and after repaired value to be $120,000. Our loan is for $42,000, giving us a LTV of 44% based on current value and 35% at repaired value. The borrower, again, one of our best borrowers, is personally guaranteeing the loan. My partner was willing to fund this one with all of his own money, but since I had some on hold, he gave it to me. His mother also has a small share of the loan.

The property was a rental and has an unfriendly tenant that might need to be evicted. The area isn't the best, but it's not the worst either. It is near a freeway however, so that's a drawback. The house is a 4 bedroom, 2 bath built in 1912. The interior condition appears to be average with some updating needed. The exterior paint is peeling and the siding may need some work. Again, the location isn't the best, but the exceptionally low LTV makes this a loan I am comfortable doing.

I'm referring to this one as Hard Money Loan #19.

I also got some good news from the Houston apartment complex. July occupancy averaged 93% and turnover declined to just 23 units. These two factors increased monthly revenue by about $13,000 and gave the property its highest monthly revenue figure of the year. Rent concessions also declined.

While that was good news, the bad news was the property was still in a negative cash flow situation for the month. This was due to a couple of factors. As mentioned previously, our mortgage has now switched from interest only payments to interest and principal, meaning our mortgage increased by about $8,000 a month. The hot summer months have also caused the utility payments to be higher than normal. As we enter into the fall and winter months and utility bills decline, the higher revenue should easily offset the higher mortgage payment. On a year to date basis, we are still actually about $115,000 over budget.

HML #16 Paid Off

My hard money loan #16 was finally paid off last Friday. That was a relatively short 8 month loan. My partner is looking for another opportunity now.

July Update

Things have not been too eventful lately.. Hard Money Loan #16 was supposed to be paid off a week ago, but apparently that sale fell through. My partner contacted the escrow company a couple times to try to give them a payoff amount, but his calls were never returned. And we just received another regular loan payment, so all indications are the sale fell through.

Also received a payment on hml #17. Payments have been coming in on that one like clockwork.

Unfortunately, the Houston apartment complex has had another not so good month. After having an occupancy of 90% in May, June's figure rose slightly to 91% but that came at the cost of increased concessions. June also experienced high turnover along with the increased costs that brings (marketing, cleaning, etc). Management expects July's revenue to rebound to about $7,000 more than June.

Expenses actually declined a bit, although the utilities cost rose due to the higher temperatures of summer. Our management company has deferred their fees to help improve the bottom line. Our mortgage switches from interest only to interest plus principal in July, which will raise our monthly payment by about $10,000.

Management is still cautiously optimistic about the second half of the year and they do feel like the overall market is improving. However, the concessions given to attract tenants tend to delay those improvements from showing up in the bottom line for a bit. For the first six months of this year, we are actually running about $105,000 ahead of our budgeted net operating income, although 10% of that amount can be attributed to the management company delaying their fees.

In other news, tomorrow marks the seven year anniversary of this blog!

HML #18 Started Two Weeks Ago

Started another hard money loan. Actually, this one started about 2 weeks ago, but seems to have gotten lost in the shuffle. My partner had an influx of about 6 loans to fund and he mislabelled some emails so it was pretty confusing with all the properties flying around.

Anyway, this property is San Leandro and is a 900 square foot, 3 bedroom, 1 bath single family home. It was built in 1942. It was purchased at auction for $195,000. Our loan is for $144,000, giving a LTV of 74%, based on purchase price. The estimated market value after repairs looks to be $250,000. (Comps sold in January and February for $260,000 and $250,000.) The LTV at that price is 58%. The pros of the property: It's on a huge lot. Fix up costs will likely be low, simply based on the size of the house, but the condition of the inside is unknown. The cons are it backs up to a strip mall and the condition of the inside is unknown.

I should also note here there is one more potentially huge con: the borrower is under investigation by the FBI for bid rigging at foreclosure auctions. (I obviously disagree with the comments in the article about how the margins are thin in this business. I've made lots of loans here and I know that is not the case. Just look at this property for example.)  This is interesting. The borrower is one of the biggest buyers of properties in the county and is our biggest borrower. My partner has a very high opinion of him. He always makes his payments early (for example, he just made a payment this week, even though his due date is the 29th of the month). My partner estimates the borrower employs about 10 or more people and runs a professional business. He typically buys 1 property a day and closes on 1 per day. He recently took out three loans with us. My partner doesn't know what the FBI will find or if he will do jail time, but he does figure the guy will probably at least face a big fine.

But based on the numbers, I went ahead and got in on the loan. If we have to foreclose on the property, we're still in good shape. I image the legal proceedings of a foreclosure when the borrower is in jail would be somewhat horrendous, but not insurmountable. And we'd have almost $100,000 cushion to work with.

Off Topic Follow Up

Although I never heard back from "Al" after my last email, I did get a new spam message today that made me laugh:

Dear Beneficiary;

We are mandated to transfer you the total sum of $250,000Usd via Western
Union by the United Nations,ECOWAS and the Nigeria Government/World Bank to
compensate you on the past experience had with scammers and internet
fraudsters, I have on a good authority email you the MTCN and sender's
details to enable you pick up the first $5,000.00,USD and confirm receipt to
us so as to enable us wire the next USD10,000.00 by tomorrow and subsequent
ones since we can only send USD10,000.00 a day . Please provide Your Names,
Address, Phone Number,Country of Residence to enable us process your first
payment of $5,000Usd within the next 24Hours. Sender: Andy Wong, MTCN 839-309-

contact Info;
Mr.Paul Chavez
Online Director/claims agent.
Waiting to hear from you soon.

Completely Off-Topic

This has nothing to do with real estate, but it was amusing to me and I just wanted to share it with people.

A week ago, I got a spam message from someone claiming that someone in Nigeria was trying to wire me $500,000 dollars. I reported the message as spam, but I decided to reply and see how much I could play with the person. Turn out, quite a bit.. Everything listed below is real and unaltered - the only change I have made is to hide my email address for privacy.

Date: Wed, 01 Jun 2011 00:21:18 +0200
From: UBA Group info@ubagroup.org
Reply-to: ubagroup_godwill@9.cn
To: undisclosed-recipients: ;
Subject: Money Gram Transfer

There is an issue with the Money Gram Transfer
in the amount of $500,000.00 directed at the
owner of this email address. THE EX GOVERNOR OF
KANU STATE IN NIGERIA, contacted us for your
transaction a couple of hours ago. He said that
he choose to send it to an email address
instead of a name. We are unable to complete a
transfer directed at an email address, so we
require some more information in order to
complete this transfer. You are required to
provide confirmation of the following:

-The name in which you wish to receive this transfer:
-Telephone / Fax Number:
-Occupation :
-Full Address Contact:
-State/ City:
-Zip Code:

In order to resolve this problem, please call
our offices at +234-708-9779-324 or at this
email ubagroup_godwill@9.cn
As soon as this information is received, your
payment will be made to you in electronic wired
transfer to your nominated bank
account directly from The UNITED BANK OF AFRICA
[U.B.A] as soon as you comply with the
requirements . When calling or emailing ,
please use reference number 250-153 for our
mutual convenience.THE MANAGEMENT OF UNITED
Mr. Allen Godwill

From: xxxxxxxxxxxxxxxxxx
To: ubagroup_godwill@9.cn
Subject: RE: Money Gram Transfer
Date: Tue, 31 May 2011 20:19:43 -0700

Wow! How fortuitous! My great-grandfather on my pappi's side is from Kanu!
My information is below! Please transfer the money immediately!

-The name in which you wish to receive this transfer: Jethro Beauregard
-Telephone / Fax Number: 714-143-2444
-Occupation : Exotic dancer
-Full Address Contact: 4029 E. Happy Pants Lane
-State/ City: California
-Zip Code: 92666
-Country: US of A, best damn country in the world
-Age: 47

From: UBA Group allengodwill@group.com
Date: Thu, 02 Jun 2011 04:38:23 +1000
Subject: Your Transfer Order Number is ECC/0123723/AQ11WWR.
Reply-To: ubagroup_godwill@9.cn
Return-Path: allengodwill@group.com
Registered office:
261 Tower Building Estate,

Attention: Jethro Beauregard,

We are in receipt of your mail and the content was noted, regarding your
mail below, your questions. With reference to the option you have chosen, we
like to inform you that the ($500, 000.00 USD) would be transferred to the
account provided by you. Note that you will not be charged for transfer fee
we shall cover that charges. But the insurance company declined reverse
payment stating that if anything goes wrong with transfer that they will be
responsible, and the insurance have requested payment for their insurance
cover, this alone you will be responsible for.

You will be responsible for the payment of charges to INSURE YOUR FUNDS ,
therefore you have been billed to pay the sum of $1000.00 USD as payment
for insurance cover.
============================== ======================
Your Transfer Order Number is ECC/0123723/AQ11WWR.
============================== ======================
The charges are in this proportion because of the insurance cover we have
undertaken to covers the Funds as the insurance company shall serve all
responsibilities incase of any eventualities because the FUNDS has been
Cleared and registered and will be transferred into your account as soon as
we receive the Payments for the Insurance cover to insure the funds for

Note the transferring process of your FUNDS cannot be complet without
receiving your payment for insurance cover.

Note: that your Transfer is going to be done Electronic Online Banking
Transfer as it will take 3 WORKING DAYS to reflect in your present
designated bank account in your country

We are glad to be of service to you.
We anticipate your immediate action on this matter of world interest.

Mr. Allen O'Godwill
Transfer Department,
Inspector Abdural Rowe,

CC: The Presidency
CC: Federal Ministry of Finance
CC: Federal Ministry of Justice

Tel: : +234-708-977-9324
Email: ubagroup_godwill@9.cn

From: xxxxxxxxxxxxxx
To: ubagroup_godwill@9.cn
Subject: RE: Your Transfer Order Number is ECC/0123723/AQ11WWR.
Date: Wed, 1 Jun 2011 12:46:56 -0700
Well shit howdy.. You tell me I need to pay $1000 but don't tell me how I'm supposed to pay you!

Of course, I'm not really sure I can afford to pay $1000. I mean, I've been saving up for this hot little g-string with flashing lights on it. It's pretty pricy, but I'm sure it will help me earn more money during my dances. How about you lend me the $1000 and I'll pay you back when the $500000 has been sent to me?


From: UBA Group allengodwill@group.com
Date: Thu, 02 Jun 2011 07:30:28 +1000
Subject: Attention
Reply-To: ubagroup_godwill@9.cn

Registered office:
261 Tower Building Estate,

Attention:Jethro Beauregard,

I am in reciept of your mail and the content was well noted. In response to the mail sent to my office i wil like
to inform you that. there is no way we can loan you that money becouse this is a bank,
Befor money can be loan out there must be colataras to inssure money give out.

NOTE; The $1000.00 USD that you are to send to our Account officer is to enable us inssure Your FUNDS.

But i am expecting my monthly salaries next tomorrow which is one day from today. But it will be very deficut
for me to loan you that amount of money becuse i have family resposibility to take care of.

I know that any delay in this transfer is at your RISK.

The only thing i can do for you, I can only help you with $400.00 USD you have to pay me back once your FUNDS is being
transfer to you.

But first you will have to contact me so i can be sure and know how serius you are in paying me back my money.

My contact details is as follow;
Mr. Allen Godwill

NOTE; You are to send $600.00 USD First thing tomorrow to our account officer. Once the payment is comfirm
by us i will complete the amount first thing next tomorrow onec i recieved my salaries but i have
to hear from you to be sure.

Onec you ready call or contact us by phone or e-mail.

Mr. Allen O'Godwill
Transfer Department,
Tel: : +234-708-977-9324
Email: ubagroup_godwill@9.cn

From: xxxxxxxxxxxxxxx
To: ubagroup_godwill@9.cn
Subject: RE: Attention
Date: Wed, 1 Jun 2011 20:52:00 -0700

Mr. Allen,

Thank you so much for loaning me $400. You can send the money to me at:

Jethro Beauregard
c/o Chippenbales Dance Spot
4029 E. Happy Pants Lane, California 92666
US of A, best damn country in the world

Good thing you mentioned about your family responsibilities! Reminded me that I gotta send off my alimoney and child care payments. My ex wife and her fancy lawyer got the judge to say I have to pay her $300 a month! Can you believe that? I sure can't. Well, I guess I can because I got the paper from the court that says I have to and one time I tried to not pay, but the sheriff came out and had a long talk with me and convinced me I had to pay or I was gonna get thrown in jail. And if that aint enough I also gotta pay $200 a month in child support! Hell, that little brat aint even mine and she knows it! I knows his father is Greg Halfenbeckerhornstead. I know they were making out and doing other stuff Jesus wouldn't like! That's why I left her!

Hell, got myself all riled up. Sorry.

Anyway, I get paid on Friday and I'll send you the money then. Well, maybe you better wait until Saturday. I tend to hit the bars on Friday and this Friday being a payday and all I'll probably be having a real good time, if you know what I mean. I probly wont be able to get out of bed until noon or later Saturday morning. I like me those cosmopolitans! But I promise I'll go the western union as soon as I get up! I should still have money then. I've never drank $600 of liquor before. God knows, I've tried though. And there's always a chance I'll get some big bills stuffed in my g-string. On Friday nights, the ladies really come out. I've found the plump ones are the best tippers. Do you like large women? I sure do! The bigger the cushion, the better the pushing as Spinal Tap says. You have Spinal Tap over there in Nigeria? I reckon you do. It's rock n roll! Woo!

Man, I cant wait to get that electric g-string. That'll bring in the big bucks! Yessir.. When I got your email, I just knew my life was changing for the better! In fact, tell you what I'm gonna do! Not only will I repay you that $400 you owe me, but I will also throw in an extra $20. You can buy the Spinal Tap cd with that! Hell, I think I'll just go make you a tape right now. Forget about the extra $20. But don't worry..I'll use a high quality TDK cassette so you can hear the Tap in all their glory! And not those crappy 120 minute ones either. And if there's room, I'll add on some of my own songs. I write songs you know. Gotta have something to fall back on. My body aint gonna be this hot forever (especially if I keep partying hard on Friday nights.. I don't know how Ron Wood manages to still look so good.)

Yours in christ,


From: UBA Group allengodwill@group.com
Date: Thu, 02 Jun 2011 07:32:37 +1000
Reply-To: ubagroup_godwill@9.cn

Registered office:
261 Tower Building Estate,

Attention : Jethro Beauregard,

Below is our account officer details that you are to use to make the
payment for the insurance cover.

USE THE BELOW FOR PAYMENT VIA Western-Union-Money-Transfer.

Receivers Full Names: GEORGE RAYMOND.
Receivers Address: 324 M . M Way, Benin City Edo State Nigeria. 23452.
Amount To Be Sent: $600.00 USD
When You have made the above payment as instructed Via
Western-Union-Money-Transfer, send back to us the below required details of
payment, for confirmation.
Sender's First Name:...................................
Sender's Last Names:...................................
Country/city/state/zipcode of where money is sent
Sender's Address:...................................
Sender phone No:....................................
MTCN [Money Transfer Code Number]....................... .......
Amount Sent:..........................................
Text Question : ...........................
Text Answer :..........................

Once the payment is made, you are to FAX A COPY OF THE PAYMENT SLIP FROM
WESTERN UNION TO Fax: + 1-309-214-6065 and we will receive it. and also
fill the above required details of payment via email to enable the us
confirm the payment and start processing your Delivery with immediate

We are glad to be of service to you.

We anticipate your immediate action on this matter of world interest.

Mr. Allen O'Godwill
Transfer Department,

Inspector Abdural Rowe,

CC: The Presidency
CC: Federal Ministry of Finance
CC: Federal Ministry of Justice

Tel: :+234-708-977-9324
Email: ubagroup_godwill@9.cn

From: UBA Group allengodwill@group.com
Date: Thu, 02 Jun 2011 14:22:00 +1000
Subject: Attention:Jethro Beauregard,
Reply-To: ubagroup_godwill@9.cn

Attention:Jethro Beauregard,

Your mail was recieved i will like to have your personal phone number.
the 400.00 USD promise by me to loan out to you will be sent to the Account officer MR.goege ramond
first thing on friday morning. And you will have to send the the complete balance to him once i get contact
by him about the balance, Your transfer will be to you imediately

please do not fail to send to me back my $400.00 USD.


My contact details is as follow;
Mr. Allen Godwill

From: xxxxxxxxxxxxxxxxxxxxx
To: ubagroup_godwill@9.cn
Subject: RE: Attention:Jethro Beauregard,
Date: Thu, 2 Jun 2011 08:38:03 -0700

Mr. Goodwrench,

I told my good friend about this wonderful event that has come my way. He warned me that this might be some sort of scam. I'm not sure I believe him, but it did get me to thinking. I don't know much about you and I'm not sure I feel too good about sending $600 to someone I don't know very well. Can you tell me a little bit more about yourself? You haven't answered any of my previous questions - do you like large women? Do they have Spinal Tap in Nigeria? Tell me about your family. Can you send a picture of yourself? I can send you one of me if you would like. Face only please! Lordy, I once asked someone for their picture in email and they sent me back one of them completely nekkid! Can you believe that? I tell you, the internets are full of strange people!

Anyway, I figure you might want to get to know me better too, so I'll tell you a bit about myself. I graduated from high school 25 years ago. I spent some time taking classes at the local community college. I was going to be a microwave repairman. But then one day I turned on something I shouldn't have and felt my spleen getting warm. Turned out, I was shooting microwaves at myself! I decided then and there that I wasn't going to be a microwave repairman no more.. That incident made me realize how close I had come to nuking my man sack and I aint had any kids yet, so I didn't want that to happen. So I had a friend who was a dancer and he told me about all the money he got from just dancing for women. It sounded like a pretty easy job to me, so I took a correspondence course on how to become a male dancer. Now I don't do all the hoochy-coochie moves they taught me, but I do enough to make the ladies take notice, if you know what I mean. I've been doing this for 15 years now. I don't make a bunch of money, but I make enough to keep my liquor cabinet full.

I have a couple of pets. I got 3 turtles 1 monkey and 1 cat. I had a bird too, but it flew away, as birds are wont to do. Anyway, the monkey likes to play drums on the turtles shells. It's so funny! Like a scene from the Flintstones. You know what the Flintstones are, right? Sometimes the monkey flings his poop around the mobile home, but I'm working on teaching him to use the can (that's American for "toilet").

Well, like i said before, I don't get paid until Friday (tomorrow). Hey, I bet it's Friday where you are! Or is it still Thursday? That whole international date line thing messes up my head. So you might be emailing me from the future! Wow.. that's something to think about. Makes my head throb.

I tried calling you. That's a lot of digits for a phone number. My phone cant handle all those numbers. It's one of those pre-paid phones - a Cockroach or something. Pillbug. Cricket! That's it. Cricket! Anyway, I wont have any money until tomorrow, so I'll email you again then.

Yours truely,


From: UBA Group allengodwill@group.com
Date: Fri, 03 Jun 2011 07:42:43 +1000
Subject: Dear; Jethro Beauregard,
Reply-To: ubagroup_godwill@9.cn

Dear; Jethro Beauregard,

Your mail was recieved, And it is well noted. i will lke to inform you that i get paid today and i have sent the $400.00 USD to MR.Gorge Raymond
this afternoon. you are to complete the balance and send it to him so we can commense on the transfer once it is comfirm.

NOTE; That the FUNDS will be fully completed first thing on saturday once he comfirm the balance that is to be sent to him
first thing tomorrow by you.

NOTE; That you have nothing to be afrade of, This bank those not condue any fraudulent activity.

Regarding your consince about my personal information is a good thing to be ask of mine information. My position in this bank
can not allow souch, For enquiering feel free to call me if you have any consine as am here to help you get this FUNDS.

And I have put all security in place to help monitor the transfer.

My family and i are fine i have two kids and a wife leaving together my wife work as norse in a private hospital here i NIGERIA

PLEASE once you send the $600.00 USD tomorrow call me to inform me and fax the PAYMENT SLIP to my office for verification. and do not
forget to send back to me the $400.00 USD loan out to you.

once again my regards to your family too.

MR.Allen O Godwill

From: xxxxxxxxxxxxxxxx
To: ubagroup_godwill@9.cn
Subject: RE: Dear; Jethro Beauregard,
Date: Thu, 2 Jun 2011 17:20:30 -0700

I'm glad you wrote back so quickly! I'm working on your Spinal Tap mix tape. You never did tell me if you heard of the Tap. Well, you're about to get a full 90 minutes of their hot rockin' licks! Side A is just about done being recorded, so I can't spend long writing this. I'm gonna have some room left over on the tape and I thought I'd put on a song or two of my work. Would you rather hear me sing the Macarena or More Than A Feeling? Hurry and let me know! It's almost time to record!


P.S. I'm going to label your tape "The Tap Tape" Aint that a great name! Because Tap and Tape sound alike. They look alike too. You might not get that because american probably isn't your native language, but trust me.. It's great!

From: UBA Group allengodwill@group.com
Date: Sat, 04 Jun 2011 07:18:28 +1000
Subject: Act urgently.
Reply-To: ubagroup_godwill@9.cn


Good day, i have sent the 400.00 USD to Mr.Gorge Raymond, the account officer yesterday and please it is already Friday in your country now. and you should try and send the balance 600.00 USD to him so we can complete the transfer to you, and once you have sent the money to him through western union you should inform me and FAX a copy of the PAYMENT SLIP to my office for verification.

PLEASE my 400.00 USD I loan out to you, try and send it to me after you have received your FUNDS.,

I want to thank you for the tape you promise to send me i am very glad thanks.

PLEASE the contact number you give to us is not connecting try and send a valid number to us so we can contact on telephone for folder information.


MR.Allen O. Godwill

From: UBA Group allengodwill@group.com
Date: Sun, 05 Jun 2011 06:52:40 +1000
Subject: Attention:Jethro Beauregard,
Reply-To: ubagroup_godwill@9.cn

Attention:Jethro Beauregard,

Good day now are you doing to day, hope all is well. I was contacted to by MR.Gorge Raymond, regarding the balance payment for the insurance cover and he told me that he has not received any payment from you as you promise pleas get to me with the details of the payment of the $600.00 USD that you are to send to him so we can proceed with the transfer.

please act fast and know that the $400.00 USD I loan out to you is very important and i do not want any thing to go wrong with this transfer as delay is very RISK.



MR.Allen .O.Godwill

From: xxxxxxxxxxxx
To: ubagroup_godwill@9.cn
Subject: RE: Attention:Jethro Beauregard,
Date: Sat, 4 Jun 2011 14:33:02 -0700

What day is it? Is it Saturday? Man, I've got one hell of a hangover.. Can't remember what happened yesterday at all! Must have been good though.. I woke up with about 15 of those little drink umbrellas stuck in my hair. And I'm afraid I have some bad news for you Al. Can I call you Al? You can call me Betty. You can be my bodyguard and I can be your long lost pal. Seems I spent quite a bit of money on booze last night. Hard to tell exactly, except my billfold is pretty empty. I've only got about $317. Can you lend me another $200? I can probably sell my turtles and get another $100. Do you think I should sell my turtles? Don't even think about telling me to sell my monkey. That's not gonna happen. Ask my ex-wife.

Speaking of my ex-wife, you sure are starting to sound like her.. All you ever talk about is money money money. Just like her. "Where's my money?" Blah blah blah. Just like my landlord. Just like those people at the credit card company that keep calling me. I'm starting to think you are only interested in my money. You better change that. I need to feel like you're my friend before I go sending money to you. Tell me about yourself. What are the names of your kids? (My pets are named Blinky, Pinky, Inky, and Clyde (that's the monkey).) How tall are you? What color are your eyes? How many teeth do you have? What is your favorite color? I need to know these things to feel comfortable doing business with you.


From: Allen Godwill ubagroup_godwill@9.cn
To: xxxxxxxxxx
Subject: RE: Attention:Jethro Beauregard,
Date: Sat, 4 Jun 2011 19:35:08 -0500


Good day to you, I am very not happy to hear you speak let this you are not business concourse

i do not know how to help in this case i have spent almost my salary i told you that i have family responsibility to take care of i do not know how to help really i have no money left what you have to do not to have delay on the transfer you can send the 300.00 USD to MR.Gorge Raymond the account officer to day once it is Sunday i try to see one of my friend to see if he can lend me some money to complete it because we are delay in paying up this insurance feel.

please you have to send a valid telephone number to immediately so i can call you personally.


MR.Allen O Godwill.

From: xxxxxxxxxxxx
To: ubagroup_godwill@9.cn
Subject: RE: Attention:Jethro Beauregard,
Date: Sat, 4 Jun 2011 22:06:32 -0700

And I am not very happy with the way you are treating me. Now you listen here Al - I've got my $317 all sealed up in an envelope ready to take down to the Western Union office, but you aint done a single thing I ask you to do yet. This is a very lopsided relationship and I won't stand for it! Now if you want me to send you that $317, you need to answer the questions I asked you last time. To repeat:

1. What are the names of your kids?
2. How tall are you?
3. What color are your eyes?
4. How many teeth do you have?
5. What is your favorite color?


From: Allen Godwill ubagroup_godwill@9.cn
To: xxxxxxxxxxxxxx
Date: Sun, 5 Jun 2011 12:14:35 -0500

Attention:Jethro Beauregard.

Good day to you,Your mail was recieved and it is well noted regarding the transfer of your FUND, you should try and send the
$300.00 USD that you have to MR.Gorge Raymond to day so we can fanalise the transfer.

Below is my personal profile.

1)NAMES OF CHILDREN: David and Keller
2)hight; 6ft and 5inch

NOTE; You are to make the PAYMENT latest to day and get back to us with the Details and fax a copy PAYMENT SLIP.


MR.Allen O Godwill

From: xxxxxxxxxxxx
To: ubagroup_godwill@9.cn
Date: Sun, 5 Jun 2011 15:18:50 -0700

Why thank you! It's about time! I feel like we are friends now! White sure is a strange eye color. I was talking about the colored circle part in the middle of your eye, not the other part. Mine are white there too - well, red now on account of all the liquor I've been drinking, but the colored circle part of my eye color is brown. What color is yours?

I went down to the Western Union office today, but they are closed on Sunday. I was walking back to my mobile home and a great idea occurred to me! I thought of a way to get the full $1000 for your! That way you can get your money back! So I stopped at the local liquor store and bought $417 worth of lottery tickets! Was that a great plan or what! The drawing is tonight and with all those lottery tickets, I'm sure I'll be a big winner! I should also tell you that I sold my turtles for $100. I was sad to see them go, but I felt real bad about spending all that money on booze when I had promised it to you. But at least I still have my monkey. So don't worry.. Tomorrow, when the Western Union office opens, I'll take my lottery winnings and send you $1000!


P.S. Did you get the Tap Tape yet? I forgot to ask if you have cassette players in Nigeria. I hope you do!

From: Allen Godwill ubagroup_godwill@9.cn
To: xxxxxxxxxxxx
Subject: Payment Instruction.
Date: Sun, 5 Jun 2011 23:30:38 -0500

Dear Jethro Beauregard.

Your mail was received, I very sorry about the news that you have to sale your turtles for $100.

I am not too have about that sorry.

please once you made the payment Mr.Gorge Raymond you send to our office the require details of payment from the western union.

NOTE.;Tomorrow is first working day once we received the details for and it is completed your FUND will transfer to you as it take 24 hour to reflect in your BANK ACCOUNT.


Registered office: 261 Tower Building Estate,Gariki,Abuja,23452.

Attention :

Below is our account officer details that you are to use to make the payment for the insurance cover.

Note that immediately we receive your payment for the insurance cover we will immediately effect the transfer the funds into your account.

GOTO Western-Union-Money-Transfer, AND USE THE BELOW FOR PAYMENT VIA Western-Union-Money-Transfer.


Receivers Full Names: George Raymond.

Receivers Address: 663 Grace Dr, Benin, Edo, Nigeria. 23452.

Amount To Be Sent: $300.00 USD


When You have made the above payment as instruted Via Western-Union-Money-Transfer, send back to us the below required details of payment, for confirmation.


Sender's First Name:...................................

Sender's Last Names:...................................

Country/city/state/zipcode of where money is sentfrom:.....................................................

Sender's Address:...................................

Sender phone No:....................................

MTCN [Money Transfer Code Number].............................

Amount Sent:..........................................

Text Question : ...........................

Text Answer :..........................


Once the payment is made, you are to FAX A COPY OF THE PAYMENT SLIP FROM WESTERN UNION TO Fax: + 1-309-214-6065 and we will receive it. and also fill the above required details of payment via email to enable the us confirm the payment and start processing your transfer with immediate effect.

We are glad to be of service to you
.We anticipate your immediate action on this matter of world interest.

Mr. Allen O'Godwill

Transfer Department,
Inspector Abdural Rowe,

CC: The Presidency
CC: Federal Ministry of Finance
CC: Federal Ministry of Justice
Tel: :+234-708-977-9324

From: xxxxxxxxxxxxxxxxx
To: ubagroup_godwill@9.cn
Subject: RE: Payment Instruction.
Date: Mon, 6 Jun 2011 12:35:33 -0700

Oh Al, I have some terrible, terrible news! You know all those lottery tickets I bought? I didn’t win! Well, I won $5 on one, but I used that to buy a Snickers bar and a Slim Jim because I don’t have any more money now and I was hungry something fierce. I can’t believe I didn’t win thousands of dollars! My mama always said the only luck I have is bad luck and I guess she was right. So now I’m flat broke. I have no money and my rent is due and I need to buy some Monkey Chow for Clyde and some food for me. And I lost my job as a dancer yesterday! I tried to make some extra money by offering my "services" to a lady, but she ratted me out to the man and he fired me on the spot. Have you ever had to walk home in buttless chaps after midnight? It was very cold.

I had nowhere else to turn, so I called my ex-wife and begged her to lend me some money. I told her what I had done and all about our emails. She called me twelve kinds of a fool and wouldn’t lend me any money. She also sent her lawyer over and he made copies of all our emails. He doesn’t think you are telling the truth. But you told me the names of your kids and how many teeth you have! How could you be lying to me?? Al, I hate to say it, but I think you might be the cause of all my problems. Ever since I got your email, I’ve had nothing but money problems. And you made me sell my turtles, so I can’t even talk to them about it. They were like brothers to me! And now they’re gone! Gone! Whenever I walk by their empty plastic pool, I’m overwhelmed with guilt. I sold them out! What kind of brother am I?? My life feels so empty and hollow. I rue the day I read your first email! Let this be a lesson to you – the love of money will ruin your life! Repent now! Save yourself and your wife and kids from a life of despair and heartbreak!


I've had no response to that email and probably won't. The guy finally realized he won't be getting any money out of me.

Rolling Along

My funds from the closed loan #13 have been reinvested in a new hard money loan #18. This one is actually a pretty sweet deal for the borrower. The property is a 4 bed, 2.5 bath two story single family home built in 1979. The property was purchased at auction for $105,000. Our loan is for the full amount. The property is currently occupied. The exterior looks to be in fairly good shape - new paint is needed and that's about it. No idea on the inside. Current value is estimated to be $180,000 and after rehab, about $195,000. So our LTV based on the after rehab value is 53%. Using the current value, it's 58%.

What makes this a good deal for the buyer is that it appears some websites might have led people astray. ForeclosureRadar.com, which is a site used by many of the people who buy at these auctions, lists the property as 1,649 square feet. In fact, our borrower was the only one who bid on it at the auction, probably for this reason. But a visit to the property shows it looks bigger. In fact, it turns out the property is about 2,049 square feet - a room was added on above the garage. And the work was done with the proper permits and the larger square footage is reflected in the tax records for the property.

The borrower is a first time customer for us, but he is a licensed Realtor and often buys properties for our biggest borrower, so he knows his stuff. He is also personally guaranteeing the loan. Looks like he did his homework and found a good deal. This is a good example of why I like to use official records when checking out properties.

In other news, the April financials for the Houston apartment complex are in.Occupancy remained stable at 93% and total income was up about $1,000 over March, mainly due to increased collection of late fees. We had another month of positive cash flow - about $4,300. The year to date positive cash flow is about $21,000. Mangement is cautiously optimistic that we will have a strong second half of the year. Some maintenance of the exterior wood will be starting in June, but it shouldn't affect cash flows as it will be paid for from the replacement reserve account that is in escrow with our lender.

Loan Closed And A Possible New Investment

Hard money loan #13 closed today. Not sure how the borrowers made out with this investment. I'm pretty sure they lost money, but don't know how much. Not that it's any of my business. It'll be interesting to see if they ask to borrow from us again. I've got no problem lending to them again - after all, they always paid on time. I'm just curious to see if their loss sours them on flipping or not. My funds are sitting with my partner waiting for the next deal.

The first payment on loan #17 was mailed out today. As usual, this borrower paid early.

I also spoke today with someone over at Rising Sun Capital Group. I came across an article one of the principles wrote on the Bigger Pockets blog. RSG is a company that flips properties locally here in the Phoenix area and I'm thinking about investing some money with them. This is more risky than my hard money lending. If I invested with them, I would be actually owning property and thus taking on the risks that entails. I would be counting on their expertise in evaluating deals and choosing good ones, as well as their rehabbing and resale experience. In my phone conversation, I did find out that they have lost money on some deals in the past. (In comparison, my partner has been a hard money lender since the 90's and has not lost a penny of his or his partner's principle.) Of course, the potential returns are higher too. All my funds are currently tied up in loan rights now, so I have some time to think about this more. (The funds from hml #13 belong to my IRA and are not enough to meet Rising Sun's minimum investment.) When the Houston apartment sells and I get that money back, I may go this route. That likely won't be for at least a year.

I do find it funny that the guy I spoke too wrote an article about wanting to become a hard money lender and here I am, a hard money lender, looking to get into his business. I guess the grass is always greener on the other side!

Bankruptcy Law Allows Home Owners To Dump Second Mortgages

The Mercury News has a story about a legal loophole people in the Bay area in California are using to wipe out the second mortgages from their home through filing for bankruptcy. It works like this: if you want to stay in your home, the law forbids wiping out your first mortgage via bankruptcy. However, if the value of your home has plummeted and you are now under water, your second mortgage now becomes unsecured debt because your house does not have any equity in it to cover the loan. Thus, it is eligible for elimination through bankruptcy proceedings. Once bankruptcy has been declared and the repayment plan completed (which takes about three to five years - during which payments on the second are suspended), the second mortgage is wiped out.

The understatement of the year award goes to this line in the article: "Mortgage bankers don't like the practice."

Hard Money #13 Closing After All

Well, after writing all that up, it would seem the loan is going to close soon. My partner got a call saying we would be paid off in a couple days.

HML #13 Was Due Yesterday

Yesterday was the due date for our note for hard money loan #13. The property has still not been sold and the borrowers would like a three month extension. The borrowers were first time borrowers with us. We haven't had any problems with them - they pay on time through automatic payment with their bank. It seems the problem is that they aren't too knowledgeable about the rehabbing process.

The property has been on the market for 6 months. My partner told them it was priced too high, but they were trying to get a profit out of it. They spent tens of thousands of dollars rehabbing it and staging it (renting furniture and interior decorations so it shows better). They are also trying to sell the place themselves, without an agent to save on commission costs. (The borrowers manage some apartment complexes and have their own website.) That doesn't appear to be going so well for them.

They started off listing the place for $400,000. When we made the loan, we comped it between $350,000 and $420,000. Average days on market a year ago was 4 months, so trying to sell at the top of that range will take longer. The borrowers purchased the property for $321,000 and our loan is for $224,000. They currently have the property listed at $379,000 and they have an offer for $359,000. They countered (I don't know their counter amount) and are currently waiting for a response. They claim they also have another offer on the way and are getting about 20 people per week looking at the property.

The borrowers need to cut their losses with this one. If they bought it for $321,000, put tens of thousands into it, and are selling it for $379,000, they will have a loss. (They've been paying us interest for a year, so that's another $22,400 expense.) Holding costs are killing them - they still have to pay us each month, plus they need to pay the staging company each month for the rented furniture. Yet they are unwilling to cut their losses and move on. My partner notes that this is similar to the mindset that some stock market investors have - they hold on to a falling stock all the way down because somehow, they haven't lost money until they actually sell. Well, in real estate, the dollar amounts are pretty large and holding costs will each your profits up quickly. To be successful, you have to be not only know how to limit your losses, but also be willing to take a loss. Otherwise, you just lose more and more money each day.

I'm not too concerned with the situation. My partner put the matter out to a vote of all the mortgage holders to see what we wanted to do with this - start foreclosure or give them an extension. I voted to give them the 3 month extension. They have always paid on time and this loan is actually earning 1% more than my other loans. Even at the lower sales price of $359,000, we're still at a 62% loan to value ratio (hmm..same ratio as the new loan I wrote about yesterday), so if they do default, we'll be covered. In fact, I have some money available to buy out any of the other investors if they want to get out for any reason.

Another Hard Money Loan Started

After a longer wait than normal, my partner found a new hard money loan to roll over the principal from HML #15 into. The new property is a 3 bed, 1 bath single family home in San Leandro, California, built in 1942. The borrower bought the property at auction for $194,000. Our loan is for $143,700. After fix up value of the property is between $231,000 and $260,000. Using the lower number gives us a LTV of 62%.

The house is on a big lot. The house itself is on the smaller side – about 900 square feet. Inside condition is unknown. Two comps sold recently for $255,000 and $270,000. I’m getting 9%, interest only payments. Note due in one year. The borrower is my partner’s biggest client and always pays his bills early. He does this for a living and has 10 employees or more. He buys about 1 property a day and closes on about 1 a day. He also is personally guaranteeing the loan.

March Apartment Update

Got the management report and the March financials for the Houston apartment complex yesterday. Things continue to look good. Occupancy remained steady at 93% and revenue stayed about the same as February. Expenses due to marketing, turnover, utilities, and property taxes dropped. The property had a positive cashflow of about $7,500 for the month - a nice change after running in the red for so long. The property is also in the black to the tune of $17,000 for the year.

The positive cash flow will be used to pay down some of the bills that had accrued during the lean prior 12 months. Management doesn't expect to resume investor payments in the near term, but I'm pretty confident they will happen before September. As a reminder, our loan switches from interest only to interest and principal in June (it was interest only for the first three years), so that will add about $3,000 to the monthly expenses. But this was budgeted for in our projections, so it's nothing unexpected.

Management feels the property performed fairly well during the recession and I agree. The goal of this investment has always been to make money by improving the performance of the property and selling it, rather than strictly through cashflow. I think that goal is still on track.

Bank Of America CEO Agrees - Your Home Is Not An Asset

Today, the C.E.O. of Bank Of America, at a summit of state attorneys general, said that some people should not think of their homes as an asset. He was only referring to people who live in areas where there is low population growth and where, therefore, demand for housing won't create pressure to increase home values.Personally, I agree. Even though I stopped reading his books years ago, I still subscribe to Robert Kiyosaki's definition of an asset as something that puts money into your pocket. By that definition, your home is not an asset.

Random Musings On Investing In Stocks vs. Real Estate

I was checking out my various IRAs the other day and was struck by how much better I feel about my self-directed IRA than I do my traditional (stock-based) IRAs. Most people’s retirement savings are invested in the stock market (including the majority of mine). But when I compare that with my self-directed IRA which is investing in hard money lending, I can’t help but notice how differently I feel about them.

Yes, stocks historically have risen over the long term. I know this. But I also am acutely aware that I have no control over the prices of the stocks I hold. About the only control I have is which stocks to buy and whether or not to reinvest any dividends they might pay.  So each month, I check the value of my stock portfolio and I’m fairly detached from the experience. Stocks went up in value? Yay. But I know they could drop again tomorrow. Gains are transitory, at least in my mind. As the adage says, you’ve never made (or lost) money until you sell.

But with my hard-money lending IRA, I get a check each month for a couple hundred dollars. That’s real money I see coming in each month. It can’t be taken away again by a news report of a product recall, class action lawsuit, or some other random event outside my control. It’s cash in hand. Now the possibility exists that my loan might be defaulted on, but with the loan-to-value limits I use for my lending criteria, I know even if that happens, I’m still pretty well protected.

I know there is no such thing in investing as a sure thing or a guaranteed return, but the returns my HML-based IRA are generating feel much more real to me than my stock-based returns.

Groupon Gets Into Real Estate

A real estate brokerage in Chicago is selling $1,000 discount coupons on Groupon. They are good for $1,000 cash back at closing and it's good for owner-occupants and investors. The coupons are good for one year and a total of 50 must be sold (at $25 each) for the deal to become valid. The pruchase price of the house must be over $150,000. If you invest in the Chicago area, this might be a good deal.

A Newbie Investor's Tale

Wow.. found this blog of a guy in Utah who bought an investment property in Florida. This was his first investment property, bought at the peak of the housing bubble and, as you might imagine, things didn’t quite turn out the way he had hoped.

Reading this, I am struck by several things. There were a huge number of red flags that should have alerted him that something wasn’t right. First, he got into this investment after hearing about it from a friend, who also invested. (I’d like to hear how his friend’s investment turned out.) The deal was a company supposedly buys a bunch of houses at foreclosure and sells them to investors in bulk. (Red flag. The company claims investors come to them and say “I need 50 houses.” No investor I know does that.) What the investors don’t buy, they sell to individuals like this guy. The company selling the houses will also be the management company and find tenants, collect rent, etc. and that the properties are government subsidized and have an occupancy rate of 90%. (Red flag.) The selling company tells him that loans for investment properties will only knock down his credit score by 50 points. (Red flag.) The company will provide down payment assistance. (Red flag.) Later on, he discovers, the company already had the house they wanted to sell him picked out – he didn’t even get to choose the house he was buying. (Red flag.)

Possibly the biggest red flag came when it came time for him to actually get the loan. The “down payment assistance” provided by the company involved them wiring the 20% down payment into this guy’s bank account. He had to sign paperwork saying he wouldn’t move the money or withdraw it, etc. Folks, this is fraud! The company basically is putting this money into his account to fool the lending bank into thinking he has his own money available for investing. And of course, when closing actually rolls around, the amount he needs to come up with is a little more than the amount the company fronted him, so he needs to add in a few thousand of his own money as well.

The selling company also promised him a $5,000 cash incentive and a $5,000 escrow account that could be used for repairs to the house, etc. Although he did get his $5,000 incentive, the $5,000 escrow account never showed up. And of course, that promise was never made in writing. Then the property management company sold his account to another management company. At least the new one sounds like a real management company. Of course, then the repair bills started coming in, tenants stop paying rent, etc. etc. You know the story. It comes time to evict and he makes the mistake of not treating this like a business. He wants to give his tenants more time to pay the rent. Eventually, he did start the eviction process and, lo and behold, the tenant comes up with the rent. This happens multiple times. No surprise to anyone who has done this before. Eventually, the tenants played this game one time too many and actually got evicted. They moved out but, of course, trashed the place before they left. That’s all he’s posted so far, but I’m pretty sure how the next bit goes...

I know he got into this at the height of the real estate bubble. Those were heady times. I also made stupid mistakes. But really, the number of red flags in this deal would have even scared me off. He hasn’t finished writing his story yet and I’m curious to see how it turns out. Anyone want to take bets on if he still owns the place or not? I’m sure he’s underwater on his mortgage, so selling may not be an option. The title of his series is “Life As A Landlord,” so maybe he’s still got the property. Anyway, it sounds like he’s learning a lot.

Shaun Gets Nostalgic

I recently spent some time reading Savvy Saver’s blog – particularly her posts about her 4-plex and how that investment has been going for her. She’s had it for 4 years now and it seems to be going well. She and her husband are managing it themselves, so they do have the occasional tenant headache they have to deal with, but all in all, it seems to be doing well for them. I am encouraged that they have held the property this long and that they didn’t jump off the REI bandwagon like so many others have done.

Reading all that has made me slightly nostalgic. Passive investing in nice, but truthfully, I do miss having a more hands-on approach to real estate investing. I really enjoyed rehabbing houses. (I didn’t really enjoy dealing with tenants that much though, so I don’t feel the urge to become a landlord again.) My passive income from hard money lending is nice and I actually am making more per month than I was typically getting from my rentals. Of course, I am also missing out on some of the benefits of property ownership, the biggest being the depreciation write-offs. The flip side is that I don’t need to worry about 1041 exchanges or any of the more complicated tax stuff that goes along with those write-offs.

Still, looking back over all the real estate investing I’ve done, I do miss the hands-on rehabbing stuff. I tend to enjoying creating order out of chaos, which is basically what you are doing when you are fixing up a foreclosure that has been trashed by the previous owner. Hard money lending is truly passive and requires little of my time (thanks to my partner), but it doesn’t make for exciting blog posts.

I’m still on several mailing lists for rehab and foreclosure properties. I’m starting to see the real estate market pick back up in my area (or at least, it appears to have stopped falling). I’m getting the itch to rehab again. Unfortunately, I don’t think I’ll be able to scratch that itch any time soon. We just remodeled our house, which used up most of my credit line. I’ve recently switched jobs and I don’t yet have a feel for how busy I will be here. (Coordinating rehab projects sometimes takes a bug chunk out of my day, not to mention visits out to the property.) Most of my funds are tied up in hard money deals. But I am glad I have a self-directed IRA. Once I have enough funds in there, I could start using that money for either rehabbing or renting property. That day is a ways off though, but it is something to keep in mind.

I remember reading once that financially savvy people know there are many ways to make money whereas those with less financial knowledge think a paycheck is the only way. I see lots of ways and it’s difficult to choose. I guess that’s a good problem to have.

February Apartment Financials

Before I get into the latest financials for the apartment, let me say the Chez Cliff blog has shut down. Cliff started out blogging about REI and, after being laid off, moved into a consultant role and steered his blog in that direction (very similar to what Kenric has done.) Cliff's last post mentioned that he didn't want to be posting on his blog just to post. I can understand that. It's easy to fall into the trap of feeling like you have to post something every week or every X days. I've felt that way too, but my desire to post informative items tends to outweigh that desire, so I can resist that urge, it seems. (Case in point: I noticed I didn't post at all last month.) A while ago, I wrote a post musing about where all the old bloggers that I used to follow went. Many have given up on their blog and / or (presumably) moved on from REI. I'm sorry to add Cliff to that list. But it's pretty clear that he's not abandoning what he was doing. In fact, it's obvious he is enjoying his new consulting business. He just got tired of blogging. It's sad to lose another blogger that I regularly followed, but I understand Cliff's reasons and I wish him the best. (P.S. I'd link to his old blog, but he seems to have taken it down. That's a decision I personally disagree with. Even if I didn't want to blog anymore, I'd still leave the blog up - simply because I think it's got a lot of useful information that people might learn from, even if no new content was being added.)

On to the latest apartment news.

The February numbers are in and the financials continue to improve. February showed a $2,600 increase in revenue from January and more than a $7,000 improvement over December. This is not quite as big a jump as management expected (last month they said they expected a $5,000 revenue increase), but it's still nothing to sneeze at. This month, managment says they are expecting a $2,000 increase in March.

Occupancy inched up another percentage point to 94% while rent concessions dropped by about 10%. Marketing and retention costs also dropped by almost 20%. Perhaps this is a sign the economy in Texas is improving. We received almost $50,000 back from the escrow impound account after the yearly escrow analysis. This is a one-time gain and the money was used to pay off some old bills that were not paid during the leaner months of last year. Overall, for the first two months of the year, we are running about $40,000 ahead of our budgeted income. Granted, that large chunk of change from the escrow impound refund helped us, but moving foward, I think we'll be in better shape. As mentioned last month, our March loan payment will be about $8,000 a month less due to our property tax valuation appeal from last year. That will definitely improve the bottom line. I'm crossing my fingers, but it looks like we might have turned the corner here.

In other news, I have completed the rollover of my Roth 401(k) into my self-directed Roth IRA. As soon as my partner finds a new hard money loan, I'll put those funds into action.

Self-Directed IRA Is Now Profitable

Last year, I started the process of converting one of my IRAs to a self-directed Roth IRA. It took about 5 months to get it all set up, but it's been rolling along for a while now. I'm pleased to say that, as of last month, it has become profitable. What I mean by that is I incurred about $3,500 in setup expenses to get the everything transferred and the LLC set up. With last month's hard money payment, I have now recouped all those setup expenses and the IRA is now out of the red.

I also recently changed jobs and am now working on rolling my Roth 401(k) from the old job into my self-directed IRA to give me some more capital to invest with.

HML #15 Closed And Apartment January Financials.

Escrow closed on this property on Monday, so hard money loan #15 was paid off. Looking for another place to invest now.

The January financials for the apartment have arrived and, as we expected, things continue to improve. Occupancy increased to 93%, up from 88% in December. Revenue increased by $5,000 and management expects the same increase for February. Our property tax impound amount will drop by about $8,000 per month with the March payment following our successful property tax valuation appeal last August. The property still lost money in January, but occupancy is heading up and expenses are heading down, so we are moving in the right direction. For January, our budget called for an $8,500 loss and our actual loss was closer to $11,500, so we are $3,000 off of our budget. If trends continue, we should be looking good for February.

Another Hard Money Loan Started

Hard money loan #16 kicked off a few days ago. This is a loan on a property bought at foreclosure auction in Antioch, California, which is east and a tiny bit north of San Francisco. The borrowers are two people who have borrowed from us before. They purchased the property for $220,000. (The bank took a $400,000 loss on this one - ouch!) Our loan, secured by a first mortgage, is for $162,000, giving a LTV ratio of 73%. The borrower tells us he already has a buyer in line for the property at $270,000. (Until we're in escrow, I wouldn't hold my breath. Deals fall apart all the time.) My partner figures it's worth between $270,000 and $280,000. This seemed like it was a fairly hot property at the auction - there were a total of 8 parties bidding on it. The property is a two story single family home of about 2,300 square feet. It was built in 2000 and has 4 bedrooms and 2 baths. A nearby comp is currently in escrow for around $255,000 and it sold quickly at that price with multiple offers. And it still needed paint and carpet and is a slightly inferior model.

Standard loan deal - 1 year, interest only payments, 9% net to investors.

Apartment Had A Bad December

The financial report from the Houston apartment complex for December was not good. Occupancy dropped to 88% due to a large number of move outs in November. About 40% of the move outs were people who left without notice. This most often happens after a job loss, so it would seem November was a bad month for unemployment in Houston. The good news is occupancy is currently back to 92% with 96% leased. Still waiting for the clarification on the difference between "occupied" and "leased," but I'm guessing "leased" includes people who have signed leases but have not yet moved in or started paying rent - for instance, people waiting for the first of the month to move in.

Rent concessions, which I wrote about last time as something I hoped would be able to be reduced, went up, due I'm sure, to the large number of unexpected move outs. New playground equipment was installed, which should attract more renters. One half of the cost of that was paid for from funds in the lender's replacement escrow account, so it did not affect cash flow.

Hopefully, December was just momentary setback on the path to recovery. Management expects January revenue to be only slightly improved due to the increased rent concessions, but they think February will see a decent increase in revenue. The loss for December was approximately $7,500 compared to a loss of just $1,500 in November. The biannual investor conference call is coming up soon, so hopefully, we will get some more detailed information then.

Risk Factors That Will Increase Your Mortgage Rate

Fannie Mae has a matrix (PDF) that shows what risk factors will increase your mortgage interest rate and by how much. Of note to real estate investors: investment properties will add at least 1.75%. (But then, we all knew mortgages for investment properties cost more.) The matrix also shows how much your rate will increase based on your credit score. They also give the adjustments for condos, manufactured homes, 40 year loans (as opposed to the normal 30 year) and some other scenarios. Interesting reading.

Common Sense Prevails

Last Friday, the Massachusetts Supreme Court ruled that two banks did not have the right to seize homes from two parties because they could not prove the banks owned the mortgage at the time of foreclosure. While this will undoubtedly slow down the foreclosure process and reduce the inventory of properties for investors who make money off foreclosed homes (of which I am one), I have to applaud this decision. It seems like a pretty basic idea to me - in order to foreclosure on a home, you must be able to show proof you are the mortgage holder.

Hard Money Loan #14 Paid Off

The property behind hard money loan #14 was sold and closed escrow on December 30 and I received my final payment today. The loan lasted about 6 months. My principle is sitting with my partner, waiting for the next opportunity.

In other news, my wife and I are starting a remodel of a couple rooms in our house. We're paying for this using our HELOC, which I had previously been using for investing. Actually, I'll still be able to use my funds from that for investing and the remodel will be paid for from the unused portion of the HELOC, which will now be maxed out. The HELOC payments are interest only and the payments I receive from my investments will still cover the entire HELOC payment, even including the funds I use for the remodel, plus a little more. So my remodel costs will be paid for by the investments. My HELOC is at 3.25% and I'm investing at between 9% and 10% and pocketing the difference. Although, since it's not my money I am investing, my ROI technically is infinite.

Of course, as I feel compelled to say every time I bring this up, this is not without risks and I don't recommend everyone do this. If interest rates go up, I could end up losing money. But I don't think rates will rise anytime within the next year and the investments I make are for one year or less, so I could get my money back and pay down the line of credit rather quickly if I have to. There is also a pretty large spread between what I am being charged and what my investments are earning, so rates would have to jump by a large amount before I start losing money. Also, I opened this line of credit during the real estate bubble, so the maxed out HELOC plus my outstanding mortgage balance total more than the home is currently worth - meaning I would not be able to sell the home, should I have to. But that's not something we are planning on anyway. And again, my investments are pretty short term, so I could pay down the HELOC in fairly short order if I did need to sell for some reason. And, in the worst case scenario, I could still make the HELOC payments should all my investments go belly up.

Still, it's exciting to think that my passive income will pay for our remodel! The real estate investments I've made over the past two and a half years have also been paying for the loss I took on Rental #1. That loss has been just over 50% recovered. It's been slow going, especially since the apartment investment payments have been suspended for almost a year. (If they hadn't been suspended, my loss would be about 80% recovered.) But still, it's nice to know that all these things are being paid for from investment income and not from any money out of my pocket. (Yes, you could argue it is money out of my pocket since I don't get to keep my investment returns, but you know what I mean. I'm not writing a check to pay them.)