I have entered into another hard money lending investment, which seems to be my preferred investment type lately. This is a first mortgage on a property that was bought at the courthouse steps (i.e., at a foreclosure auction). Purchase price was $181,000. The buyer put up $100,000 of his own money and we (myself and some other investors) are pooling our money to create the $81,000 difference and write a first mortgage. This is a 1 year only note, with a 12% interest rate (net 10% to investors after the processor takes 2% for his trouble) with no pre-payment penalty. I am one of three investors on this note.
The note that was foreclosed on was for $532,000, meaning the lender took a $351,000 loss when selling this property. (Of course, that loan was made during the real estate bubble and is not really a true indication of the value now.) The property is a four plex which is fully rented. Total monthly rent is $3,550 and is broken out per unit as $700, $1,250, $900, and $700. Comps are in the $150,000 range. (Technically, the property is a triplex with a 1 bed / 1 bath house in the rear of the property, but we're treating it as a four plex for analysis purposes.)
If we have to foreclose, we have a property that generates $42,600 in gross annual rent for $81,000. Not too bad.
Now this is not normally a deal we (myself and my partners) would do. The property was bought for $181,000 and comps at $150,000?? Why are we even interested? There are several reasons. First, the borrower has put up $100,000 of his own money. Second, he is a broker in the area and my partner has known him for 10 years, so we are comfortable that he knows what he is doing. Third, the total loan on the property is $81,000, so the loan to value ratio is 54% (using the $150,00 comp figure), still darn good. And lastly, if you look at the property from an income standpoint, it's a good deal. $42,600 in gross rent for $81,000 is a 53% ROI. But that's not a true number, since that is gross rent, not net rent. But even assuming 50% of the rent goes to pay maintenance, taxes, etc., we're still looking at a 26% ROI.
This illustrates a good point about rental properties. A four plex is right on the border between being considered a standard income property, like a single family home, and a commercial property. Where SFHs are typically evaluated on their property characteristics, such as loan to value, appreciation potential, etc. as well as their ROI, commercial properties are generally evaluated largely on their cash on cash return, or ROI. Being a four plex, one could look at this either way and it looks like a good deal either way.
I am labelling this investment hard money #8.
First Payment on HML #7 Received
The first payment on Hard Money Loan #7 has been made. It was made on time too, which is a nice way to start things off. As an added bonus, Les, my partner, included an extra half month's worth of interest. This is because when HML #6 ended, I elected to just let him keep my principle while he looked for another investment, rather than mail it back to me and then have me send it back to him when he found one. At the time, he stated I would not earn interest on the money while he was looking for a new investment, but apparently he made enough on this new investment that he is sharing it with his investors. It took him 15 days to find a new investment, so he gave us an extra half month's worth of interest. Nice.
Hard Money Loan #4 continues to perform well. Yesterday I received another on time payment. This is the eleventh on time payment and I'm happy with the performance.
Hard Money Loan #4 continues to perform well. Yesterday I received another on time payment. This is the eleventh on time payment and I'm happy with the performance.
Another Boring Month of Profits
I remember reading somewhere (I forget where), that generating wealth through real estate investing is boring. If you've got a good investment, the checks just roll in each month. I'm starting to feel that way with my Houston apartment complex investment. It's been almost a year since I first invested in this complex and each month, report has been very similar - vacancies are down, profit is up, etc. Last month was no exception. I continue to have no complaints with the property or property managers.
The report for May was good. Revenue was up slightly over April's figure, vacancies and bad debt decreased. Cash flow for the month was just over $12,000 - lower than normal due to the final payment for painting the exterior of the property. Cash flow should return to the $20,000+ level next month. No other significant expenses are planned for the property. The planned property improvements and hurricane damage repairs are complete.
This is the kind of boredom I like!
The report for May was good. Revenue was up slightly over April's figure, vacancies and bad debt decreased. Cash flow for the month was just over $12,000 - lower than normal due to the final payment for painting the exterior of the property. Cash flow should return to the $20,000+ level next month. No other significant expenses are planned for the property. The planned property improvements and hurricane damage repairs are complete.
This is the kind of boredom I like!
On Being An Accidental Slumlord
Newsweek has a good article this week titled "How I Became An Accidental Slumlord." It does a good job at presenting the conflicts a landlord feels when renting to lower income families.
Things Turning Around?
I've haven't spent a great deal of time investigating, but from the signs I am seeing and the news I am hearing, I am starting to think it's getting close to time to get back into local real estate investing. Prices in my area seem to be coming back down to "normal" levels and I am seeing good deals again, especially on foreclosed properties. I am also seeing a large number of "bank owned" for sale signs around town. Of course, you can't just look at home prices to determine if the market has bottomed out. You also need to look at demand and the availability of buyers. As I said, I haven't done any detailed analysis yet, but my gut feeling is things could be turning around soon. Of course, I could be wrong...
Hard Money loan #6 was paid off a couple weeks ago and I have used the principle from that to make another hard money loan. Call this one Hard Money Loan #7. It should be a fairly short loan. This property is a 2,700 square foot house built in 2006. List price is $380,000 and it is already in escrow to be sold. The seller (my borrower) bought it for $186,000. Homes in the area typically sell for $257,000 to $320,000. The loan is for $138,000, so we are fairly well protected. ROI is 10% with monthly interest only payments.
On the landline phone elimination front, everything has been switched from the landline and I am ready to cancel it. I am pretty happy with Callwave's internet fax service. The only thing I don't like is that they have an address book on their website, but you can't use it to select a number to fax to! Seems a bit pointless to me. Other than that, I've been happy with both sending and receiving faxes through them.
And my annual trip to Las Vegas was again fruitful. Well, pretty much for everyone I went with but me. Everyone got royal flushes at video poker except your truly. My wife won $1,300 with hers. My sister-in-law won $1,500. And my brother-in-law won $1,000 with his first one. Not 10 minutes later, he got a second royal flush and won another $1,000 at the same machine! Although I didn't get a royal flush, I did get the most four of a kinds than anyone else on the trip. Those paid between $62.50 and $200 each. I was a bit disappointed though. It seems the economic downturn has hit the Wynn a bit. Last year, many of their video poker machines were set at full pay ("9/6"). This year, there wasn't a 9/6 machine to be found at either the Wynn or Encore. They were all 8/5, which has a lower total return to the player. Oh well. It didn't seem to hinder us to much!
Hard Money loan #6 was paid off a couple weeks ago and I have used the principle from that to make another hard money loan. Call this one Hard Money Loan #7. It should be a fairly short loan. This property is a 2,700 square foot house built in 2006. List price is $380,000 and it is already in escrow to be sold. The seller (my borrower) bought it for $186,000. Homes in the area typically sell for $257,000 to $320,000. The loan is for $138,000, so we are fairly well protected. ROI is 10% with monthly interest only payments.
On the landline phone elimination front, everything has been switched from the landline and I am ready to cancel it. I am pretty happy with Callwave's internet fax service. The only thing I don't like is that they have an address book on their website, but you can't use it to select a number to fax to! Seems a bit pointless to me. Other than that, I've been happy with both sending and receiving faxes through them.
And my annual trip to Las Vegas was again fruitful. Well, pretty much for everyone I went with but me. Everyone got royal flushes at video poker except your truly. My wife won $1,300 with hers. My sister-in-law won $1,500. And my brother-in-law won $1,000 with his first one. Not 10 minutes later, he got a second royal flush and won another $1,000 at the same machine! Although I didn't get a royal flush, I did get the most four of a kinds than anyone else on the trip. Those paid between $62.50 and $200 each. I was a bit disappointed though. It seems the economic downturn has hit the Wynn a bit. Last year, many of their video poker machines were set at full pay ("9/6"). This year, there wasn't a 9/6 machine to be found at either the Wynn or Encore. They were all 8/5, which has a lower total return to the player. Oh well. It didn't seem to hinder us to much!
