Between Christmas and New Years, hard money loan #9 was paid off. I made a couple thousand dollars on it. I'm leaving my principle with my partner for investing in another loan when he finds a good one.
Over Christmas, we had some out-of-town relatives staying with us and one night, my brother-in-law handed me a real estate listing for a property that was literally down the street from my house. It was listed for $90,000! Being that I live in the neighborhood, I know that property was worth at least $250,000. So we walked down the street to look at the house. It was night, so we couldn't see much, but we could tell it was still occupied. It looked to be in good condition on the outside. The listing said it had a pool. Back at home, I did some more research. Obviously, this was a foreclosure or pre-foreclosure, but I couldn't find anything in my search of public records. No notice of foreclosure auction, no judgments against the owner, nothing. If I had to go based on my research, I'd say the owner was not in any sort of financial difficulty at all.
The following day, I called the listing agent and asked if the $90,000 price was correct. He said it was, although he had received offers so far up to $150,000. He confirmed it was heading to auction. The agent's cell phone cut out, so I didn't get more info, but it sounded good.
The average selling time for properties in the neighborhood is 6 months. I ran some numbers on the conservative side - using an 8 month holding time, below market selling price, etc. and the results looked pretty good. For an all cash deal at $160,000, they could get about a 42% annualized return in that 8 months. Unfortunately, they had no funds available, so they had to pass. I passed as well, since most of my funds are tied up in hard money loans right now. Too bad.
One interesting thing is that I found the original note for the loan on the property and it was for more than $90,000. More than the current high offer of $150,000. That must mean they are trying a short sale, which means the lender would need to approve the final sales price. I would have thought the listing agent, who was a Realtor, would have mentioned this. I also suspect the $90,000 listing price was deliberately set low to attract potential buyers. I'm not sure about the ethics of this and I'm not sure what requirements Realtors have in setting the initial asking price, but it seems like a used-car salesman trick to me.
In other news, my progress towards rolling my IRA into a self-directed Roth IRA is slowly moving forward. For tax reasons, I had to wait until 2010 before I could do the actual conversion. I'm going about this in a couple steps. First, I am converting my Rollover IRA to a Contributory (Traditional) IRA. They are basically the same thing, but my CPA tells me the law that allows me to spread out taxes on the Roth conversion for two years only specifies conversions from a Contributory IRA to a Roth, not a Rollover. The law will probably be changed to fix this, but just to be on the safe side, I'm taking this extra step. The second step will be to convert the Contributory IRA to a Roth IRA. I will do this at the brokerage the IRA is currently at. The third and final step will be to transfer that Roth IRA to a company to who will set up the self-directed IRA. I am currently leaning towards the iTrust offered by NAFEP.
I am currently at the first step in this process and imagine it will take a couple of months to get everything all set up.
Showing posts with label hard money #9. Show all posts
Showing posts with label hard money #9. Show all posts
Another Hard Money Loan Starting And One Wrapping Up
Got some emails yesterday for two new hard money opportunities from my partner in California. I only have the funds available for one right now, unfortunately.
The deal I chose is a first mortgage on a property in Castro Valley, CA. The property is a 1,500 square foot duet, built in 1979. (A duet is similar to a duplex in that it is two units that share a common wall. However, unlike a duplex, the units can be owned by different parties.) The property was bought at a foreclosure auction by two professional rehabbers. They already have a mortgage on another property with my partner and they are paying on time on that one.
The rehabbers bought the property for $254,000. My partner estimates it will take about $20,000 to fix up. Comps are conservatively valued in the $320,000 and up range. There is one comp that is currently on the market listed at $339,000, although it has been on the market for 2 months, so that might be a tad high. Another comp is in the sale pending status with a price of $299,000. Our property is in a better location, however. The defaulted mortgage was in the amount of $325,900, but the lender started the auction bidding at $198,900. The price was bid up to $254,000, which is the price the borrowers got it for. We are writing a mortgage for $192,600, which is a 75.8% LTV, using the conservative comp figure. Terms are the usual - 10% net to me, the investor (borrower is paying 12%, but my partner keeps 2% as a service fee), interest only payments due monthly, loan term is 1 year. There is an incentive for the borrower to pay off the loan early.
The rehabbers purchased this property on 11/16 and on 11/17, my partner visited the property. There were already workers in there rehabbing the place, so they are not wasting any time on this.
I'll refer to this investment as Hard Money #10.
In other news, hard money loan #9 may be wrapping up soon. The property is in escrow now. We estimated the property to be conservatively worth $330,000 to $350,000. It was listed at $389,000 and it quickly got an offer for $410,000. Nice! The borrower bought it for $238,000 and put about $58,000 in improvements. He'll make a bit over $100,000 on this one in 3 or 4 months time. Nice! (of course, this assumes escrow closes..)
The deal I chose is a first mortgage on a property in Castro Valley, CA. The property is a 1,500 square foot duet, built in 1979. (A duet is similar to a duplex in that it is two units that share a common wall. However, unlike a duplex, the units can be owned by different parties.) The property was bought at a foreclosure auction by two professional rehabbers. They already have a mortgage on another property with my partner and they are paying on time on that one.
The rehabbers bought the property for $254,000. My partner estimates it will take about $20,000 to fix up. Comps are conservatively valued in the $320,000 and up range. There is one comp that is currently on the market listed at $339,000, although it has been on the market for 2 months, so that might be a tad high. Another comp is in the sale pending status with a price of $299,000. Our property is in a better location, however. The defaulted mortgage was in the amount of $325,900, but the lender started the auction bidding at $198,900. The price was bid up to $254,000, which is the price the borrowers got it for. We are writing a mortgage for $192,600, which is a 75.8% LTV, using the conservative comp figure. Terms are the usual - 10% net to me, the investor (borrower is paying 12%, but my partner keeps 2% as a service fee), interest only payments due monthly, loan term is 1 year. There is an incentive for the borrower to pay off the loan early.
The rehabbers purchased this property on 11/16 and on 11/17, my partner visited the property. There were already workers in there rehabbing the place, so they are not wasting any time on this.
I'll refer to this investment as Hard Money #10.
In other news, hard money loan #9 may be wrapping up soon. The property is in escrow now. We estimated the property to be conservatively worth $330,000 to $350,000. It was listed at $389,000 and it quickly got an offer for $410,000. Nice! The borrower bought it for $238,000 and put about $58,000 in improvements. He'll make a bit over $100,000 on this one in 3 or 4 months time. Nice! (of course, this assumes escrow closes..)
Double Update
I haven’t reported on the Houston apartment complex for the last two months, so here’s a two month recap:
August occupancy was 95% and revenue was $228K or, excluding a payment from AT&T for having them become the complex’s preferred phone provider, $196K.Total cash flow was $40K.
The economic woes hitting the rest of the nation have finally started to creep into Houston, which had been somewhat spared from the slowdown before.
In September, occupancy dropped to 94%. There were 22 move-outs, about half of which were due to the slowing economy and half due to typical reasons – home purchases, job transfers, etc. These move-outs have already been filled thanks to new marketing efforts.
In September, revenue was $202K revenue with a cash flow of $14K. The large drop was due to an escrow analysis by our lender which showed our escrow account was being underfunded for insurance and tax costs. Therefore our monthly payment for our loan will increase slightly and a chunk of cash had to be deposited into the escrow account to bring it in line with estimated payments. This deposit was mostly covered by income we received from AT&T last month for referring our tenant and new tenants to them for phone service, but it does impact the figures for this month.
I also received another quarterly profit distribution.
In other news, I continue to receive on-time payments for my three outstanding hard money loans – hard money #4, #8, and #9.
August occupancy was 95% and revenue was $228K or, excluding a payment from AT&T for having them become the complex’s preferred phone provider, $196K.Total cash flow was $40K.
The economic woes hitting the rest of the nation have finally started to creep into Houston, which had been somewhat spared from the slowdown before.
In September, occupancy dropped to 94%. There were 22 move-outs, about half of which were due to the slowing economy and half due to typical reasons – home purchases, job transfers, etc. These move-outs have already been filled thanks to new marketing efforts.
In September, revenue was $202K revenue with a cash flow of $14K. The large drop was due to an escrow analysis by our lender which showed our escrow account was being underfunded for insurance and tax costs. Therefore our monthly payment for our loan will increase slightly and a chunk of cash had to be deposited into the escrow account to bring it in line with estimated payments. This deposit was mostly covered by income we received from AT&T last month for referring our tenant and new tenants to them for phone service, but it does impact the figures for this month.
I also received another quarterly profit distribution.
In other news, I continue to receive on-time payments for my three outstanding hard money loans – hard money #4, #8, and #9.
The Hard Money Blog?
It appears this blog is turning into a blog about hard money lending. This was not a conscious decision on my part, but just an evolution caused by the real estate market collapse and my relative lack of free time. When the real estate bubble burst, flipping houses because financially more dangerous. With prices dropping steadily, it was difficult to find a house at a low enough price that could be rehabbed quickly and sold at a profit some time later. It is the nature of the rehab business that delays occur. Large delays coupled with rapidly dropping prices made estimating the eventual sale price of the property difficult. An unforeseen delay could end up costing tens of thousands of dollars in lost value, thus rendering the rehab project a financial loss. So, I got out of that business until the markets stabilized.In my area, prices were dropping too rapidly and properties could not be bought cheap enough for deals to make sense. I also had some additional commitments on my time, so I was no longer able to devote as much time as I had in the past to finding deals and, should one be found, to the rehab project itself.
However, other parts of the country are seeing some stabilization. Other people have the time to find and work the deals. So I delved a bit deeper into hard money lending, and that’s the direction the blog has taken. Having the experience of rehabbing houses myself, I feel I have some additional insights into the hard money deals that come my way. Although my deals are primarily in another part of the country, I still have a general idea of the costs and effort involved. This allows me to make more informed decisions on whether or not to invest in a hard money opportunity. It also helps to have partners you trust and who have more experience than you, as I do. As I look back over the last several months of my real estate investments, I find myself moving more and more into the passive income arena. The various hard money loans I have made are passive, as is my investment in the Houston apartment complex. While the returns may not be as great as doing deals completely myself, I am getting good returns and still have my time available for other things. I recently turned 41 years old. I have a 5 year old daughter. At this point in my life, the passive investment route suits me fine.
Which is a long way of saying I received more passive income checks yesterday. I got my monthly payments for hard money loans #8 and #9, right on schedule.
However, other parts of the country are seeing some stabilization. Other people have the time to find and work the deals. So I delved a bit deeper into hard money lending, and that’s the direction the blog has taken. Having the experience of rehabbing houses myself, I feel I have some additional insights into the hard money deals that come my way. Although my deals are primarily in another part of the country, I still have a general idea of the costs and effort involved. This allows me to make more informed decisions on whether or not to invest in a hard money opportunity. It also helps to have partners you trust and who have more experience than you, as I do. As I look back over the last several months of my real estate investments, I find myself moving more and more into the passive income arena. The various hard money loans I have made are passive, as is my investment in the Houston apartment complex. While the returns may not be as great as doing deals completely myself, I am getting good returns and still have my time available for other things. I recently turned 41 years old. I have a 5 year old daughter. At this point in my life, the passive investment route suits me fine.
Which is a long way of saying I received more passive income checks yesterday. I got my monthly payments for hard money loans #8 and #9, right on schedule.
Hard Money Loan #9
Just got into a new hard money loan today. The borrower is the same person who was the borrower for hard money loan #7. That loan only lasted two months, but this one should be a bit longer - we're guessing 6 months. (The legal document says the loan is for a maximum of 1 year.)
The property was another one bought at a foreclosure auction in the northern California area. We have a first mortgage in the amount of $160,500. Investors are getting 10% interest-only payments paid monthly. The house is a 3/2 SFH that is about 1,250 square feet. It comps in AS-IS condition at $250,000 conservatively or $275,000 non-conservatively. After it is fixed up it, it should be worth somewhere in the $330,000 to $350,000 range. The property does back up to some train tracks, but the comps were used did as well. One comp actually was only on the market for 8 days! The borrower has $90,000 of his own money in it. Using the conservative valuation, our LTV is 64%.
The old owners, who were foreclosed on, are still occupying the property, so the borrower will need to go through the eviction process to get them out. (This is one reason why we're pretty sure this loan will last longer than 2 months.)
The property was another one bought at a foreclosure auction in the northern California area. We have a first mortgage in the amount of $160,500. Investors are getting 10% interest-only payments paid monthly. The house is a 3/2 SFH that is about 1,250 square feet. It comps in AS-IS condition at $250,000 conservatively or $275,000 non-conservatively. After it is fixed up it, it should be worth somewhere in the $330,000 to $350,000 range. The property does back up to some train tracks, but the comps were used did as well. One comp actually was only on the market for 8 days! The borrower has $90,000 of his own money in it. Using the conservative valuation, our LTV is 64%.
The old owners, who were foreclosed on, are still occupying the property, so the borrower will need to go through the eviction process to get them out. (This is one reason why we're pretty sure this loan will last longer than 2 months.)
