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.)
Showing posts with label Hard money #14. Show all posts
Showing posts with label Hard money #14. Show all posts
Loan Closing And Apartment Financials Improving
The property behind hard money #14 has been sold and is supposed to close escrow this week. If it does, this will have been a 6 month loan, which is pretty good. (The mortgage note was for a one year term.) The property was rehabbed in two months and was on the market for four months.
Things are turning around slowly at the Houston apartment complex too. Occupancy for November was 90% and we saw a decline of about $3,000 in rent concessions as well. Revenue is up about $3,000 from the late summer months and $20,000 higher than March, which was the lowest month this year. Expenses dropped due to some management-negotiated utility rebates from overbilling. Management also waived some management fees - not sure why. Cash flow was about negative $1,600, the lowest it's been since February. Things definitely seem to be turning around. Rent concessions, while dropping, are still higher than I'd like to see. They are roughly four times higher than they were in January of this year and three times over the budgeted amount. If we can cut that expense down, the property will easily be back in the black. But that all depends on if the local economy can support that.
In looking at the income statement in more detail, I just noticed not only did management waive their fee in November, but they did in October as well. That's a $4,800 a month savings for the last two months. Obviously, that won't continue. And I believe our mortgage switches from interest-only to interest and principle soon after the first of the year. So we're not out of the woods yet, but we are on the right track.
Things are turning around slowly at the Houston apartment complex too. Occupancy for November was 90% and we saw a decline of about $3,000 in rent concessions as well. Revenue is up about $3,000 from the late summer months and $20,000 higher than March, which was the lowest month this year. Expenses dropped due to some management-negotiated utility rebates from overbilling. Management also waived some management fees - not sure why. Cash flow was about negative $1,600, the lowest it's been since February. Things definitely seem to be turning around. Rent concessions, while dropping, are still higher than I'd like to see. They are roughly four times higher than they were in January of this year and three times over the budgeted amount. If we can cut that expense down, the property will easily be back in the black. But that all depends on if the local economy can support that.
In looking at the income statement in more detail, I just noticed not only did management waive their fee in November, but they did in October as well. That's a $4,800 a month savings for the last two months. Obviously, that won't continue. And I believe our mortgage switches from interest-only to interest and principle soon after the first of the year. So we're not out of the woods yet, but we are on the right track.
Rolling Along
Nothing much new has been happening on the investment property front. My hard money loans are being paid on time. Operations at the Houston apartment complex were essentially unchanged for September (the last month I have data for) from August. As I mentioned after the last investor conference call, the property is currently losing money, but things are slowly turning around. Management expects a return to profitability in early 2011 and a resumption of investor payments at that time. I think some of the other investors are getting impatient for distributions to start again - management sent out a notice today reiterating what they said in the yearly conference call. I guess many of the investors were not on that call so didn't know the situation.
The property behind hard money loan #15 will be ready to be listed in about 2 weeks. Back when our borrower first got the property at a foreclosure auction, it was still inhabited by the prior owners and their brood - a total of 8 adults, 2 kids, and 3 dogs. The prior owner wanted $6,000 and 1.5 months to move out. We offered $1,500 and 4 weeks. He came back and asked for $3,000. We told him no way. He threatened to take all the windows when he left. I've now found out that we did have to hire an attorney to file a suit to get him out, but as soon as he was served, he moved out without damaging the property. It cost $900 for the attorney, so we saved $600 over what we had offered him and he got nothing from us.
The property for hard money loan #14 is still on the market. It went up for sale in mid-August for $499,000. Our borrower has dropped the price now to $475,000. If I was the seller, I'd drop the price more to sell it quickly, but as long as the borrower keeps paying, let him list it for whatever he wants :-) Even with the price reduction, he's got close to a $100,000 profit waiting for him when it sells.
I don't know the current status of the property behind hard money loan #13, but I received another payment on the loan yesterday, so it's current.
The property behind hard money loan #15 will be ready to be listed in about 2 weeks. Back when our borrower first got the property at a foreclosure auction, it was still inhabited by the prior owners and their brood - a total of 8 adults, 2 kids, and 3 dogs. The prior owner wanted $6,000 and 1.5 months to move out. We offered $1,500 and 4 weeks. He came back and asked for $3,000. We told him no way. He threatened to take all the windows when he left. I've now found out that we did have to hire an attorney to file a suit to get him out, but as soon as he was served, he moved out without damaging the property. It cost $900 for the attorney, so we saved $600 over what we had offered him and he got nothing from us.
The property for hard money loan #14 is still on the market. It went up for sale in mid-August for $499,000. Our borrower has dropped the price now to $475,000. If I was the seller, I'd drop the price more to sell it quickly, but as long as the borrower keeps paying, let him list it for whatever he wants :-) Even with the price reduction, he's got close to a $100,000 profit waiting for him when it sells.
I don't know the current status of the property behind hard money loan #13, but I received another payment on the loan yesterday, so it's current.
Status Update
Time for a status update. All my active hard money loans are current and have been paying on time. Hard money #14, which was just made mid-June, might be paid off soon. The property has been fixed up and is on the market. This guy works fast! Here's a shot of the place when my borrower purchased it:
And here it is now:
Looks much nicer. He took down the fence, which is something I probably wouldn't have thought to do. Also fixed up the landscaping. He are some pictures of the inside. He's got the place staged nicely!
And he did all this in two months. Very fast! It's listed for $499,000. Our mortgage is for $198,000.
On the Houston apartment front, we had the semi-annual investor conference call last week. Things are starting to turn around there, although the property is still in a negative cashflow situation. First, an update on the Houston economy: times are still tough there. Class B and C apartment complexes have been hit hard. (We are a class B complex in a class A location, so I'd say we are a slightly higher end class B.) Sixty-seven percent of apartment complexes in Houston are offering concessions. Rents have declined 4.1% in the months of January through April. Job losses are slowing, although employment in Houston is very erratic - the number of jobs has fluctuated +/- 30,000 over the last 1 year.
Now for the good news: Occupancy is trending up in 2010. We are currently at 92%, up from a low of 87% in January. Move outs and move ins, a sign of tenant turnover, are trending down - only about 4 in the last month from a high of 27 in June. Cashflow is negative about $4,000 a month, but this is also trending up, from around negative $15,000 a month a couple months ago. The negative cashflow is mainly due to insurance and taxes. We did have a successful appeal of the property valuation for tax purposes, so that will result in a lower tax bill. Insurance has also been renegotiated and will be lower in the future. Unfortunately, both of these items are required to be collected in an escrow account by our lender, so the reductions will not be seen immediately, as we will have to wait until the next yearly escrow analysis for the decrease to be seen.
Comparing the actual numbers with the pro forma numbers that were figured going into the deal shows we are actually fairly close. Total operating expenses on a per unit basis are $4,645 and the pro forma number was $4,470. The increase is due to higher utilities, taxes, insurance, and security. Management fees are slightly lower than the pro forma numbers.
Management is taking steps to bring down our per unit operating expenses. Besides the taxes and insurance, the biggest expense was security. We had inherited a security contract when we bought the property that was fairly expensive. That contract has since expired and we have switched to a new security company, which reduces the cost to about 20% of what it was, resulting in a savings of over $190,000 per year. Altogether, the changes should bring our per unit operating expenses down to around $4,150 - even better than our pro forma number.
Management is also taking some unique steps to attract and keep tenants. They are contacting large employers in the area and trying to get contracts for 10% of the units. They are offering tenants a job loss addendum on their leases. This says if they lose their job within 6 months of moving in, they can resign for a new 1 year lease and get one month free rent - which they must pay back at the end of the year. So it basically delays the income for us, but could possibly keep the tenant from moving out, while also extending their lease. They are also offering a 20% discount to current or retired police officers who live on site, with an additional $25 discount if they park a marked car on site. The property is already a Blue Star certified complex, a designation bestowed by the Houston Police Department for properties that have taken significant steps to deter crime and provide a safe environment.
The loan on the property switches from interest only to amortizing in July of next year, so that will cause our loan payments to rise. However, since we are repaying principle, this is really equal to a return of our principle to us, only we won't get it until we sell the property. Management is looking to resume quarterly distributions to investors early next year. That will give them time to return to a positive cash flow and also build up a small contingency fund.
And here it is now:
And he did all this in two months. Very fast! It's listed for $499,000. Our mortgage is for $198,000.
On the Houston apartment front, we had the semi-annual investor conference call last week. Things are starting to turn around there, although the property is still in a negative cashflow situation. First, an update on the Houston economy: times are still tough there. Class B and C apartment complexes have been hit hard. (We are a class B complex in a class A location, so I'd say we are a slightly higher end class B.) Sixty-seven percent of apartment complexes in Houston are offering concessions. Rents have declined 4.1% in the months of January through April. Job losses are slowing, although employment in Houston is very erratic - the number of jobs has fluctuated +/- 30,000 over the last 1 year.
Now for the good news: Occupancy is trending up in 2010. We are currently at 92%, up from a low of 87% in January. Move outs and move ins, a sign of tenant turnover, are trending down - only about 4 in the last month from a high of 27 in June. Cashflow is negative about $4,000 a month, but this is also trending up, from around negative $15,000 a month a couple months ago. The negative cashflow is mainly due to insurance and taxes. We did have a successful appeal of the property valuation for tax purposes, so that will result in a lower tax bill. Insurance has also been renegotiated and will be lower in the future. Unfortunately, both of these items are required to be collected in an escrow account by our lender, so the reductions will not be seen immediately, as we will have to wait until the next yearly escrow analysis for the decrease to be seen.
Comparing the actual numbers with the pro forma numbers that were figured going into the deal shows we are actually fairly close. Total operating expenses on a per unit basis are $4,645 and the pro forma number was $4,470. The increase is due to higher utilities, taxes, insurance, and security. Management fees are slightly lower than the pro forma numbers.
Management is taking steps to bring down our per unit operating expenses. Besides the taxes and insurance, the biggest expense was security. We had inherited a security contract when we bought the property that was fairly expensive. That contract has since expired and we have switched to a new security company, which reduces the cost to about 20% of what it was, resulting in a savings of over $190,000 per year. Altogether, the changes should bring our per unit operating expenses down to around $4,150 - even better than our pro forma number.
Management is also taking some unique steps to attract and keep tenants. They are contacting large employers in the area and trying to get contracts for 10% of the units. They are offering tenants a job loss addendum on their leases. This says if they lose their job within 6 months of moving in, they can resign for a new 1 year lease and get one month free rent - which they must pay back at the end of the year. So it basically delays the income for us, but could possibly keep the tenant from moving out, while also extending their lease. They are also offering a 20% discount to current or retired police officers who live on site, with an additional $25 discount if they park a marked car on site. The property is already a Blue Star certified complex, a designation bestowed by the Houston Police Department for properties that have taken significant steps to deter crime and provide a safe environment.
The loan on the property switches from interest only to amortizing in July of next year, so that will cause our loan payments to rise. However, since we are repaying principle, this is really equal to a return of our principle to us, only we won't get it until we sell the property. Management is looking to resume quarterly distributions to investors early next year. That will give them time to return to a positive cash flow and also build up a small contingency fund.
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.
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.
