New Loan and A Sign Of The Times

As I mentioned last week, I had two loans get paid off recently. A third loan, hard money loan #8, was just paid off yesterday. This loan was somewhat unusual in that it was actually carried to the full 1 year term. I don't have any information on if the property sold or if the borrower just refinanced to pay us off and he still is working on or trying to sell the place.

So, with the exception of one loan through my self-directed IRA, my money is all just sitting around and not earning any interest right now. Or I should say, was just sitting around. Just got details of a new offer yesterday that I will invest roughly a third of my funds in. The borrower is a referral to my partner from a mutual friend. The guy knows what he is doing and rehabs houses for a living. He is also a member of CCIM, an institute of commercial and investment real estate professionals. The property is a single family home in Oakland, California that was purchased at a foreclosure auction. The property was purchased for about $265,000 and our mortgage will be for $198,000, giving us a LTV of 75%, based on the purchase price. The current value is approximately $323,000, so the LTV with that figure is about 61%. Loan is standard terms, with a slightly lower interest rate: 9%, interest only, 1 year term. I'll call this one hard money loan #14.Here's a picture of the property:

Not too pretty, but that's what foreclosure investing is all about.


I'm starting to see many indications that the real estate market is turning around. First, obviously, are the three loans I had close in two weeks. Those were sales in California. But even closer to my home here in the Phoenix area, I am seeing signs of a turnaround - literally. I passed this sign on the way home yesterday:

Note the "We're back!" line. This particular tract has been sitting vacant for two years. This sign was taken down two years ago and has just now been put back up. (The "immediate move-in" is something of a lie as there are no houses built yet.) On other empty lots around town, I am starting to see signs advertising new stores that will be built and should be open in a year or less. Perhaps the worst of the real estate mess is behind us now.

Two Loans Closing This Week

Hard money loan #12 is closing today. This one only lasted two months. That’s the shortest loan I’ve made in a while, possibly ever. The borrower almost got a discount for paying it off so quickly. The standard loan note my partner uses generally provides incentives for early payoff if made within 30 days of funding or 60 days of funding. The 60 day cutoff was June 5, so the borrower missed getting a $3,560 discount by 3 days.

Hard money loan #11 is still scheduled to close on Friday.

Got my first check from hard money loan #13 today. This is the one that I’m using my self-directed IRA for. I must say, I’m pretty happy. That one payment is already more than my traditional IRA that is invested in the stock market has made this year. Of course, I still need to recoup the costs of setting up the self-directed IRA, so technically, I’m still in the hole on this one. But getting a check each month feels a lot better than helplessly watching the stock market gyrate.

Loans Closing and Things Looking Up

It looks like hard money loan #11 is scheduled to close next Friday, the 11th. All in all, my partner says the California area where we have our hard money loans seems to be a seller’s market right now. We’ve currently got four properties in escrow. A couple buyers backed out, but new buyers were quick to appear. I expect to have my other loans paid off soon.

In multi-tenant property news, I received a nice detailed state of the market analysis from one of the principles involved in my Houston apartment deal. He lives in Arizona and his report is about the Phoenix area. For background, he talks about the factors that all conspired to get  us where we are today. Of course, the housing bubble hit the apartment arena as well as single family homes and people were buying apartments based on wildly optimistic pro forma numbers. But then the market softened and the large numbers of single family homes started hurting the apartment market. Many of these SFHs were put up for rent or left for foreclosure. Then the home buyers tax credit kicked in and many renters stopped renting and took advantage of the tax credit and glut of SFHs to become home owners.  But things are looking up now. Jobs are starting to come back and layoffs have slowed. Local businesses, such as restaurants and home improvement stores, are seeing business pick up. It looks like the apartment sector is starting to make a comeback. This person had stopped buying properties in the Phoenix area in 2005, when valuations were sky high. He now feels it might be time to start buying again.

Harry Potter And The Mountain Of Paperwork

Last week, I wrote about my decision to try to move all my documents to electronic format. I've spent the last week converting some of them. Luckily, several of the companies I deal with provide access to electronic statements online, even if you had not signed up for them in the past. This means I was able to download, for example, the last 10 years of my brokerage statements from Charles Schwab. That saved me a lot of scanning. For the things I couldn't download, I have slowly been scanning documents. I've gotten through about one and a half drawers of my 4 drawer file cabinet. Here's a picture of the documents I've converted to electronic form so far:

In case you can't read it, that's a tape measure hanging off the pile. It's showing the stack is 9 inches tall. I just waved my trusty scanner at the pile and Reducio! Gone! Now I've got lots of shredding to do.

My online backup has also been proceeding over the past week. It's currently backed up about 60% of the 50 GB of data I have selected. (Since I have unlimited storage, I selected others things to back up besides the  electronic documents I am creating, such as my photos and MP3s.) Once this initial backup has finished, subsequent backups will be almost instantaneous.

In real estate-related news, it would seem the market in California, or at least one part of Calfornia, is recovering. The property I made hard money loan #11 against is finished being rehabbed and is now on the market. It was put up for sale on a Monday. By Saturday, the seller had received seven offers at or above the list price! We figured it would sell for $700,000, but it looks like the seller may be able to get $725,000 for it. If the seller accepts an offer and all goes well with escrow, the loan should be paid off by mid-June.

I also finally got everything all finished in setting up my self-directed IRA. I opened a bank account for the LLC yesterday. Now I just have to wait 1 week for the bank to release the hold on my deposit check and I'll be able to start hard money lending with my IRA!

Big Update

Wow..It’s been almost three months since I started the process of setting up a self-directed IRA. Time flies! I am approaching the end to setting everything up, I believe. Probably half of the delays were my fault. First, I filled out the wrong paperwork – I filled out the Traditional IRA application instead of the Roth IRA application. I didn’t catch that until the account had been opened, so then we had to close that account and restart the process using the correct forms. Then, Schwab, where I had the assets I was funding this IRA with, refused the request to transfer funds out. It took three tries. The request kept getting rejected because the paperwork from the new IRA custodian didn’t specify “Roth IRA” in one location on the paperwork. Once we got that straightened out, the transfer went smoothly. But each rejection took a couple of weeks, so we lost a lot of time there. After the funds are transferred to the new custodian, the next step is the creation of an LLC. The IRA will then purchase all the shares of the LLC, thus giving me, the LLC manager, control of the LLC funds.  Well, I checked with my account rep and he told me the fund hadn’t arrived from Schwab yet. Turns out, he was checking the old traditional IRA account that we incorrectly set up initially. Once I pointed this out, he checked the correct account and saw the funds had been transferred. Last week, he started the LLC creation process. I checked the Arizona Corporation Commission’s website this morning and found that the LLC was created yesterday. The next step in the process (and the final one, I think) will be to open and fund a bank account. I believe I will be getting a letter from the LLC custodian to take to a bank that will allow me to open a bank account in the name of the LLC. I’ll contact my account rep later today and find out the next steps I need to take.

Had an update on the Houston apartment complex. I missed the semi-annual conference call, so I only have the info in the monthly reports to go on. It looks like the economy is finally catching up to the Houston market and more jobs are being lost there. Occupancy for January went up slightly and early February also showed some gains. Occupancy is at 90%. Total cashflow was negative $911 in January, the first time the property has had a negative cashflow since we bought it. Management expects cashflow to remain low for the first quarter of this year. This property continues to outperform other similar properties in the area however. The overall market occupancy is 84.8%. The submarket we are in is running 86.6%. As mentioned earlier, we are at 90%, so I feel management is doing a pretty good job. Rent concessions are actually about $200 below budget for the month of January. Higher insurance and real estate tax escrows continue to adversely impact the bottom line. Management was looking into obtaining new insurance and hopefully that process will be completed soon.

On the hard money loan front, things are running smoothly. I have two loans that will likely be paid off soon – hard money loan #4 and #10. Loan #4 was a loan on a motorcycle to a former co-worker of mine. He was recently laid off (about 1 year after I was also laid off) and he is selling the bike. He thinks he has a buyer for it now. The property for loan #10 has been on the market for about 3 months. The owners have it priced a bit high. We knew going into this one that their estimate of the value of the property was probably too high, but even using our lower estimate, the deal still looked good. Now it’s just a matter of the owners coming to the same conclusion on their own. We estimated the property was worth $320,000 and loaned $192,600 in the deal. The owners started out listing the property at $378,600. They have lowered it now to $348,600. They have the property fixed up nicely and have staged the house so it shows well. Even so, they’ll probably have to lower the price again. They are current on payments though, so I’m not worried.

Loan #11 is progressing as well. We had to evict the previous owner to get him to leave, but that process only took 1.5 months, which is relatively quick. The property needs paint, carpet, tile, and some minor flooring work. It should be set to go on the market in 3 weeks. This is the property bought by my partner’s wife, so I’m sure things will move swiftly.

And lastly, my wife and I took a little trip to Las Vegas last weekend. We got a deal from the Wynn for 3 free nights plus $300 in free play and took advantage of it. When we got there, my wife wanted to play the $300 credit on a $5 video poker machine. She sat down and, on her very first hand, got this:

Amazing!! The rest of the trip sort of went downhill from there, but it was a heck of a way to start! And it was nice knowing that we were playing with their money for basically the entire trip.

Hard Money Loan #11

My partner finally found another property to invest my principle from hard money loan #9, which was paid off a little over a month ago. Hard money loan #11 is on a property picked up for one cent over opening bid at a foreclosure auction in San Ramon, California. I normally don't post photos of the properties I am lending on here, but this one is just beautiful, so I have to. For a foreclosure, this is in excellent shape.




This was a rental property and my partner spoke with the owner (who was being foreclosed on). He said he has two tenants living in the property who are paying him $1,600 a month in rent. The lender sent the tenants a letter stating they can live in the property for up to 60 days after the sale. Not sure what authority they have to make that promise since after the sale, it is no longer the lender's property and they should have no say in what is done with it. But anyway, when my partner was there, the tenants were loading a U-Haul, so they don't seem to be planning on staying.

The house was purchased at auction for $577,000 cash and the first mortgage I am a part of will be for $400,000. This gives a LTV of 69% based on the purchase price. The property was purchased in 2004 for $860,000. Current estimate of worth is between $650,000 and $700,000. Buyer is my partner's wife, who has a credit score in the 800s. The interest rate is 9%, which is one percent less than what I normally get. I consider it an employee discount :-) Mortgage is for one year, but we expect it to be paid off in 6 months.