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!
Showing posts with label Hard Money #13. Show all posts
Showing posts with label Hard Money #13. Show all posts
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.
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.
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.
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.
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.
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.
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.
First Investment With Self-Directed IRA
It’s been a very long time in the making – five months – but I am now making my first investment with my self-directed IRA! I opened the bank account two weeks ago, the hold on my initial deposit check ended last week, and now I’ve found a new hard money investment. This one will be all the more sweet since it will be made using funds from my self-directed Roth IRA, and thus the profits will be tax-free!
My partner has another hard money lending opportunity. This one is for a mortgage of $224,000 on a property the borrower purchased at auction for $321,000, giving us a 70% LTV ratio. (Well, loan to purchase price ratio, anyway. The actual value of the property is somewhat variable, as I mention below.) The property is a single story, single family home in central California. It was built in 1951 and is a 3 bedroom / 2 bath property with 1020 square feet. It has an attached single car garage. The previous owners were out of town owners renting it out.
Comps range from $380,000 to $420,000 from another investor who has never seen the property, but knows the area, to $370,000 from automated sources (Zillow and ForeclosureRadar) to $350,000 from a Realtor who looked at pictures of the property but did not check the MLS. Given the wide variety in comp values, I would expect this property to take a little longer than typical to sell. Back in 2007, the last time it was listed in the MLS, the average days on market for the area was about 4 months. And the listing price for this property back then was $600,000. This property is located in the same city the property for hard money #10 was in.
Investment is standard terms – 10% interest only payments, loan term of 1 year with balloon payment due at loan end. This loan will be labeled hard money #13.
My partner has another hard money lending opportunity. This one is for a mortgage of $224,000 on a property the borrower purchased at auction for $321,000, giving us a 70% LTV ratio. (Well, loan to purchase price ratio, anyway. The actual value of the property is somewhat variable, as I mention below.) The property is a single story, single family home in central California. It was built in 1951 and is a 3 bedroom / 2 bath property with 1020 square feet. It has an attached single car garage. The previous owners were out of town owners renting it out.
Comps range from $380,000 to $420,000 from another investor who has never seen the property, but knows the area, to $370,000 from automated sources (Zillow and ForeclosureRadar) to $350,000 from a Realtor who looked at pictures of the property but did not check the MLS. Given the wide variety in comp values, I would expect this property to take a little longer than typical to sell. Back in 2007, the last time it was listed in the MLS, the average days on market for the area was about 4 months. And the listing price for this property back then was $600,000. This property is located in the same city the property for hard money #10 was in.
Investment is standard terms – 10% interest only payments, loan term of 1 year with balloon payment due at loan end. This loan will be labeled hard money #13.
