Home > Archives for 2008
Friday, December 19, 2008
In reviewing the paperwork, I noticed one other thing different than I mentioned before. I originally said the property was bought at auction for $272,000 and the lender was owed $488,000. Turns out, the lender was owed $524,000. That doesn't really matter, as the important figure is what the house is worth now - which still is around $300,000 to $350,000.
Friday, December 5, 2008
I was originally diagnosed back in 1999 or 2000. I was on a business trip and gradually started losing all vision in my right eye. When I returned home, I saw an ophthalmologist (although not in stereo vision - ha ha, a little humor for you) and was told I had optical neuritis, which is a typical symptom of MS. My vision mostly returned, although it is not 100% in that eye and probably never will be. I had some other episodes where I felt numb on parts of my body, again typical MS symptoms. After meeting with a neurologist and a battery of tests, I was diagnosed.
So why do I mention this? Because last March, Crystal left a comment on my blog saying she was in Section 8 housing because she had MS (and presumably it was affecting her ability to work). Since I saw that comment, I've been meaning to bring up my situation here, but there never seemed to be a good time. I've realized there probably never will be a good time.
Because MS is so unpredictable, I have no way of knowing how long I will be able to work. Hopefully, a very long time. However, I am attempting to plan for the possbility that someday I may be forced into not working, and to prepare for that, I want passive income.
Most people try to obtain passive income to get out of the "rat race," their nine to five job. To do so, you need your passive income to be greater than your expenses. For me, my passive income needs will be higher than most. If I did not have insurance, my medicine for controlling MS would be almost $2,400 a month. This is on top of my mortgage and other living expenses. And when my wife and I retire, assuming no cure has been found by then, I will need to buy my own medical insurance, which will probably cost more than that. So passive income is something of a necessity for me if I want to retain the standard of living I am accustomed to.
Crystal, if you still read this blog, I hope things are going well for you, both in your housing situation and with MS. You've always been on my mind these past nine months. Sorry it took so long for me to write this.
Tuesday, December 2, 2008
Wednesday, November 19, 2008
Total revenue has increased to over $195,000 last month, which is the highest revenue figure yet. As mentioned last month, rent concessions are down, which resulted in rental income increasing by about $7,000.
Some areas still ran over budget - admin expenses and landscaping. The increase in admin costs was due to one time charges for setting up check scanning direct deposit services. Landscaping was higher due to seasonal planting. Apartment turnover costs increased (but were still under budget) due to the increase in occupancy.
Net income for the property for the month was almost $25,000. A very nice month indeed!
Monday, November 10, 2008
Luckily, another opportunity came my way not long after I was laid off - call this one Hard Money #6. This is another mortgage lending deal that will earn me a 10% ROI. The property is in Livermore, California and was bought at auction by an investor who owns 10 properties in the area and knows the location well. He's already rehabbed 12 houses this year and netted about $500K of profits. His purchase price was $272K. The mortgage, of which I am a partial investor, is for $210K. The lender was owed $488K. Current market value of the property is about $350K. A conservative estimate would be the low $300Ks. So using a conservative value of $300K, we're at a 70% loan to value ratio. The property is a 3 bed / 2 bath, 1,125 square foot house built in 1955. The mortgage is interest only for 1 year with a ballon payment of the entire principle due at the end of the term. We expect the loan will be paid off via refininacing or a sale in 6 months.
I'm not going to replace my day job with income from this loan, but it is nice to have some extra funds coming in. And it's nice to know I have some options out there for generating income.
On another note, I'm starting to see more professional investors return to buying properties at auction lately. Maybe things are going to be turning around soon for real estate.
Wednesday, October 22, 2008
The damage caused by Hurricane Ike came in at around $25,000, which is less than the insurance deductible, so we will not be making an insurance claim. Payments will be made from regular operating funds.
This report is the first one to include comparisons between budgeted numbers and actual numbers. Nothing shady was going on prior to this. It's just that when initially taking over a property, there are lots of one-time expenses and utility deposits that have to be made, so the numbers for the first couple months do not accurately reflect the normal day-to-day operational costs. Even so, there are still some numbers that are out of whack this month due to some errors. The local water company had our billing start date 22 days later than it should have been, so we had almost an additional full month of water and sewer charges. There was also a procedural issue with the payment of leasing commissions going back to when we took over the property, so this month also saw four months worth of commissions paid out, increasing the payroll number. Even with these charges, the property cashflowed a positive $14,000 in September. Adjusting for the errors, the cashflow was almost $22,000.
As for the budget vs. actual comparison of monthly numbers, things look pretty good. Gross rent was right on target, We are under budget in four areas: Loss / Gain to Lease ($383 under), Vacancy ($784 under), Bad Debit ($1,318 under), and Employee Apartments ($200 under). We were over budget on Rent Concessions ($4,867 over), and the previously mentioned utility and payroll areas. Overall, the property was $1,508 over budget for the month of September, meaning it turned a $1,508 smaller profit than budgeted. Rent concessions, as mentioned last month, were high, but they were cut back during the month and the decrease won't be seen until next month's numbers. It also is looking like next month's revenue numbers will be $6,000 higher than this month, which will increase the profit.
I continue to be happy with the performance of this investment!
Tuesday, October 21, 2008
Monday, October 20, 2008
One free app I found is called Buy That Duplex Lite, or BTD Lite for short. This is a simple little investment property analyzer. You input the property price, down payment amount, loan interest rate, and loan length and it will calculate your monthly mortgage payment and cashflow. You can specify eight different monthly expenses (vacancy rate, maintenance utilities, property management fees, insurance, taxes, and Other) or accept the default values for these fields, and it will calculate your monthly cashflow. Although it is called Buy That Duplex, nothing in the program is specific to duplexes and this could be used to analyze any investment property. And although the calculations it performs are not complex and can be done in a spreadsheet or even by hand on paper, I think the real value of this program is that is runs on the iPhone. This enables you to take it with you when you go out looking at potential properties to perform on the spot analyses. It also gives you some ammunition for those real estate agents who assure you that every property they have available will cashflow. Simply plug in the numbers and see if he or she is telling the truth.
The default values for the expenses (entered as a percentage of the monthly rent) are reasonable and you can change them should you feel the need. I would like to see one more figure added to the cash flow analysis section: the annualized return on investment (ROI) percentage.
A version with more features, called Buy That Duplex Pro, is scheduled to be released next month. This version is set to include the features of the Lite version plus amortization tables, property appreciation tables, an equity analysis function, net sales proceeds calculator, and the ability to store favorites (for when analyzing and comparing several properties at once). No word on the cost for this version yet.
An added feature I would like would be a reverse calculation where you give the program the ROI you want, and it will calculate the price and/or down payment you need to obtain that rate of return. Perhaps that could be a feature in the full version of the program. It would also be nice if you could enter addresses for properties or use the iPhone's GPS feature to mark a location when at the property. Then tie that data into Google Maps. And how about using the iPhone's camera to take pictures of the various properties? Those would likely be deluxe features found in the pay version, but they would be very useful when comparing properties.
All in all, BTD Lite is a slick little program that will really help investors as they travel about searching for new properties to acquire.
Tuesday, October 14, 2008
Thursday, October 9, 2008
I agree that the tenants are not to blame for the foreclosure - in most cases. It's the landlord, after all, who has not paid the mortgage. However, that doesn't mean the tenants are entitled to live there for free. The law is the law and the sheriff should enforce it and kick the tenants out.
From what I can tell, the sheriff's main beef is that tenants are being evicted even if they have paid the rent on time. His justification for refusing to enforce eviction notices is the fact that the banks are not identifying the people living in the property when they issue him the eviction notices, as they should be. OK, maybe the banks should be doing that (although I think it might be rather difficult for them to do so, especially if the bank is located in another state). But by refusing to evict tenants at all, he is also allowing those tenants who do NOT pay their rent to remain in the property for free. He says he is coming across "innocent tenant after innocent tenant" that are being kicked out. Hmm. The last time I checked, it was a judge's or jury's responsibility to determine someone's guilt or innocence, not a sheriff's. And he obviously is taking the tenant at their word. As any landlord can tell you, tenants are known to tell lies now and again when it comes to rent payment matters.
But suppose the banks give the sheriff what he wants and they do start correctly identifying who is living in the building when they give him the eviction notice. This will not change what he has to do. He will still be required to evict the "innocent" tenants. Loan contracts clearly state that if the mortgage is not paid, the bank gets the property, no matter who is living in it. The tenants will still have to be evicted. Sorry, Sheriff. You have to enforce the law, no matter how unpleasant you find it.
As for wanting legislation to protect the tenants, what exactly does he want to see? The property owner go to jail? Well, that's not going to solve anything. The bank still won't get their money if they can't take back the property. First, there is no guarantee that the tenant's rent will even cover the amount of the mortgage in the first place. (If the owner was smart, it would, but in the midst of the real estate bubble, many, many people rented investment properties for less than the mortgage amount, hoping that appreciation would make them money in the long run.) Second, the bank does not want to be in the landlord business, so having the tenants remain in the property and just pay the bank instead is not an option. I'd be interested in knowing exactly what type of legal remedy this sheriff would like to see. I guarantee you it will not be fair to someone.
Thursday, October 2, 2008
Tuesday, September 30, 2008
Yesterday, I came home from work and picked up the mail. I had three checks waiting for me - one was the second payment of hard money loan #4 and the other two were from two of the four flipping LLCs in California that I am invested in. The three checks more than cover the amount of my car repair. Nice!
Wednesday, September 24, 2008
Rent concessions were a bit less than double the previous month, coming in at around $10,000, due to market competition, but management has cut them back now and are only offering them on the smaller units. Almost completely offsetting the increase in concessions was an increase in "other income," which includes move-in fees, lease termination fees, pet fees, laundry income, late fees, and tenant screening fees.
Monday, September 22, 2008
This is very similar to what Live Free Investment Group was doing here in the Phoenix area. I met with them last year to find out more about what they do. Although, and I stress this, I have no reason to believe Live Free Investment is doing anything illegal, immoral, or is involved with the above mentioned type of scams, it was something I was worried about back then. Whenever you take title to a property from someone in foreclosure and allow them to continue to live in the property, I see nothing but trouble. When the person has to move out, there is very little doubt that they are selling the property. But when they can stay, things can get murky in their minds. Even given that companies like Live Free may be 100% legit, the scams that are going on will no doubt bring more regulatory actions down on the entire industry and cause the legal costs, both real and potential, for doing these types of transactions to increase.
This is one of the reasons my step by step guide for buying preforeclosures stresses that the sellers must move out of the property.
Monday, September 15, 2008
We have gotten some additional info about the damage:
- Approxiamtely 12 trees were knocked down and in the process, the trees roots may have damaged some pipes.
- The gas is turned off on one of three boilers, so units connected to those boilers do not currently have hot water.
- Brick siding fell off two of the buildings and damaged car ports and air conditioner units. It looks like only one A/C unit was damaged badly enough to have to be replaced.
- There appears to be some possible electrical wire damage as well, but no word yet on the extent of that.
- There was some roof damage which led to leaks, which caused drywall and carpets to get wet and require repair or replacement.
- Some patios were damaged by falling trees.
We were supposed to receive our first profit distribution this month. I'm sure that will be affected to some extent by this, both in the amount and the timing. We do have insurance on the property, so hopefully that will cover most of the costs. Obviously, the management's priority is on helping the residents, so the investor reports will be put on the back burner.
Thursday, September 11, 2008
Management fee - $75 - This was for a partial month
Maintenance - $30
Lawn Maintenance - $200 - This was only for a partial clean up. More next month.
Cleaning - $75
In looking at the invoice details, I see that they charged me $25 for each trip to the property to meet someone plus mileage charges of between $15 and $20 each trip. This may be standard procedure for property management companies, but my old PM company never charged me. Of course, given the condition the property was in, it's likely they never went out to the property anyway.
Management fee - $100
Maintenance - $137
Paint and paint supplies - $255
Lawn maintenance - $625
Cleaning - $238
Doors / windows - $25
Exterminating - $100
The maintenance included replacing the chimney cap, which had blown off during a storm during the month and removing some water that came down the chimney. It also included removing the satellite dish that the storm also blew down.
I should also note that the PM company was the one who did much of the yard work, painting, and other minor maintenance. I was properly billed for their time, of course, although I have my doubts that they are qualified to do some of the repairs they did. Apparently, the garage was full of junk, as they billed me for 8 hours to clean out the garage and haul the trash to the dump. If the garage was full of junk, no wonder the place wouldn't rent for months!
Management fee - $100
Maintenance - $70
"Maintenance" this month means they met three contractors to get repair quotes for the roof plus mileage charges.
Natural gas bill - $126
Electric bill - $286
I think these are so high because they cover multiple months. Both bills include notices that bills were paid late. I don't see any late charges listed, but it does make me wonder why they weren't paid on time.
Monday, September 8, 2008
I received my second payment from Hard Money loan #3. Glad to see that the borrower is paying on time, although only two payments do not constitute a trend. But it's only a one year loan, so it's already 1/6 over.
I am expecting a monthly statement from the operations at Multi #1 any day now. This month should also include the first profit distribution.
And finally, Rental #1, the property in Tulsa that I sold for a loss recently, is still not quite wrapped up. I spoke with the property manager on the phone early last week and was told everything was paid and the remainder of my deposit was being sent to me. Last Thursday, I received an email from the PMs that included scans of all the receipts for repairs and a scan of the refund check. None of it has actually shown up in the mail yet though, so I'll wait to write about that until I actually get it. Back in May, I sent them a $3,000 deposit. Their estimate of the repair work was $1,500. Figuring that plus the $100 a month management fee they charged (although they only had it for 1 or 2 months before it was sold), I was expecting a refund of somewhere close to $1,500. The email showed the check to be just over $500, so obviously there were more expenses or they did not estimate the needed repairs very well. I'll go over it it more detail when the hard copies arrive in the mail.
Thursday, September 4, 2008
He found out last weekend that his house was robbed. It appeared to be the work of professionals. They took everything that was of value and left stuff that wasn't - even to the extent of taking expensive paint sealant but not the cheap paint sitting right next to it. They tried taking some pool equipment, but that was too heavy. A neighbor actually saw the people doing it and spoke with them. I guess the people told her they were moving the rest of the stuff out per my co-worker's request. There were a couple items that the lady told them she thought they wanted to leave, so the thieves left those, but they must have had the woman fooled. She said they had a big truck to load everything and looked like movers. Since this took place either a day before the foreclosure auction or the day of, it would seem there are some con artists going through the public foreclosure records and cleaning places out right before auctions. It could just be a coincidence, but I don't think so.
Something to be aware of...
Friday, August 29, 2008
Monday, August 25, 2008
Tuesday, August 19, 2008
Friday, August 15, 2008
On the financial front, the improvements completed so far have come in under budget. Additionally, we successfully appealed a property tax assessment, resulting in a savings of just over $40,000 compared to the budgeted amount for taxes.
One thing that I would like a bit more explanation on is the management's decision to not move forward with the plan to install a playground area. They have decided there are not enough children in the complex to justify it and management is looking at other amenities to add instead of a playground. But I seem to recall reading or hearing during the due diligence phase of this investment that tenants with children tend to be more stable renters and move less. So while there are not many kids there now, maybe a playground would attract more families. I would think that those would be the type of renters we want to attract. On the other hand, maybe the current tenants are there precisely because there are few kids in the complex and bringing more in would alienate them. Since it's not my area of expertise, I'll have to trust that management knows what they are doing on this one.
Monday, August 11, 2008
The property is a duplex on a 7,000 square foot lot. Units are 1,050 square feet (2 bed / 2 bath) and 945 square feet (2 bed / 1 bath). There are 4 parking spaces. Conservative estimate for monthly rental income is $2,800. Borrower, who has better knowledge of the area, believes it can rent for $3,400. If the borrower does not perform and we have to foreclose, the exit plan is to keep the property and rent it out for its cashflow.
I've decided to invest in this. I'll label it Hard Money #5.
Friday, August 8, 2008
Next month, though, will be the three month anniversary of our purchase of the property. Since they distribute profits quarterly, we should be getting our first real return on our investment then.
Monday, August 4, 2008
Update: One more thing left: I am also still waiting for the mortgage company to return the monies in my escrow account.
Thursday, July 31, 2008
So this dropped his credit score because it looks like he now has a maxed out credit card. We were discussing how we could get this corrected. We both agreed it would be a hard task. Chances are, if he called the customer service number for his loan, he'd get someone who didn't even know the difference between a secured and unsecured loan, let alone how they are reported to credit agencies, etc. So it looked like an uphill battle to get this changed. (I should point out that he is planning on purchasing his first house soon, which is why he wants his credit score to be as high as possible.)
After thinking about it for a few minutes, I realized I could help him. I could put on my hard money lender hat and lend him the money to pay off the loan. He could then make sure the lender reported it as closed and it would not be included in calculating his credit score. He would continue making monthly payments to me. I would not report the loan to any credit agencies (unless, of course, he defaults). I offered him the same terms as his current loan: 3 years, 7.9% APR. I also charged a 1 point origination fee. He accepted the deal and today we drew up the paperwork and signed everything. I've now got another hard money loan going, my fourth one overall. I get more passive income at a higher interest rate than a bank would pay and he gets a higher credit score. Everyone wins! And, to return to something I wrote about three years ago, the point I charged means I created money from nothing again!
I should point out the obvious: I trust this guy, I know he has a steady, stable job that he has been at for several years, I know the approximate value of the motorcycle, etc. I wouldn't normally make a hard money loan with the collateral being a depreciating asset like a vehicle.
Monday, July 21, 2008
Some final items still remain to be taken care of: I called my insurance agent today and told him I sold the property. My insurance coverage will be canceled effective last Monday and I'll be getting a refund of the unused premium. I also contacted my management company. To date, I have not received any kind of statement or receipts for charges incurred. I sent them $3,000 to handle some repairs and management fees two months ago. I asked them for an accounting of all expenses and a refund of the unused funds. They said they are working on that and need to wait to make sure all the bills are paid. Truthfully, I should have been asking for this after the first month, but I knew I was selling the place soon, so I let it slide for a month.
So, what lessons did I learn from all this? Several.
- The adage is true: Real estate is all about location, location, location. I did not make a trip out to visit this property before I bought it. I relied on another person's opinion and since that person was the seller, there was an obvious bias. Because she got it rented quickly, I assumed I would be able to do the same when it came time for the next tenant. I did not know the property was in gang territory and would be difficult to rent.
- I assumed the seller, who rehabbed this property and several others, worked the same way I worked - namely, that she had a professional inspection performed in order to see what needed to be repaired. This is what I have done on all the properties I rehabbed. I looked back through all the documentation the seller provided to me and I did not get an inspection report. Nor did I have one performed before or after I bought the place. Shame on me. Again, I assumed the seller did this and her rehab would have fixed whatever turned up on the report, especially since her husband is a contractor. The problem with the roof would have either been fixed or at least brought to my attention had this been the case. I did find the seller's disclosure statement and she indicated she knew of no problems with the roof and no repairs to it had been done under her ownership.
- Property management companies are a mixed blessing. On the one hand, they free up your time by managing your property for you. On the other hand, they won't do anywhere near as good a job as you would. Obviously, each company is different, but it seems property management companies don't work too hard to find tenants for your property, especially if you only have one single family home listed with them. Nor do they seem to care about the condition of your property. Of course, I am sure there are exceptions to these trends, but they are probably hard companies to find.
- The declining real estate market hurt the resale value. While the property location is likely the main cause for my loss, the collapse of the real estate market did not help me when I needed to sell quickly.
But just to end things on a positive note, while I was in Las Vegas, I did do some winning. About 15 minutes after I sat down on my first day, I got this:
The rest of the day, I kept getting screens like this:
At the end of the first day, I was up about $1,600. Of course, I gave it all back, but it sure was fun!
Wednesday, July 9, 2008
It still seems like whatever title problems there are are still not fixed. We're just overlooking them now, just like we did when I bought the place. But it won't be my problem any more...
Tuesday, July 8, 2008
It seems recording titles in Oklahoma is just one big shell game and it doesn't really matter what is recorded on the actual title says, since escrow companies can just waive requirements at will. If this is not resolved quickly, I will start threatening lawsuits and will start trying to get the original escrow company's license revoked.
Wednesday, July 2, 2008
- There is a previous mortgage listed in the names of some people I've never heard of. Why is this being discovered now? This should have been discovered when I first bought the property or again when I refinanced the property - two previous occasions when title work was performed on this property.
- The private mortgage that one of my companies made to another is showing up as a second mortgage. Not only is this incorrect, that mortgage was paid off through a refinance about a year ago.
Monday, June 30, 2008
We are still going to try for our original close of escrow date of July 2 - which is Wednesday. Not sure this can happen, but the title company is going to try. They are unable to locate the abstract of the property, so I've given them the name and company of the title agent I worked with when I bought the place. There were potential title issues then and they had to do some work to clear it up. To my knowledge, it was cleared up, but I guess they didn't return the abstract or something.
The title company is also going to fax me all the paperwork to sign and I will need to overnight it back so they have it on Wednesday. I just realized my wife's name is on the paperwork too. This will be a bit of a hassle since our signatures will need to be notarized. There is a notary in my office, so getting mine done is no problem, but getting hers will require some running around. And, of course, I will need to wire the title company some funds. I did find out that the buyer already has all the paperwork and their funds at the title company.
Full details here.
Saturday, June 28, 2008
Termite damage under the house to the supporting rafters. Around $2600 to repair/replace, buyer has enough to do this himself. Roof has 3 layers on it. Original layer is wood shingles, two are composition shingles.
Inspector did notice some shingles missing on one side of house, suggested we try to get insurance claim as you know. He informed the buyer that he should get a bid on roof due to fact this could create some problems in future and insurance coverage could be one of those problems. We have sent two roofing companies we use out to get estimates, both have come back with the comments that the roof is not showing any leakage nor missing enough shingles and their thoughts are the insurance will probably reject any claim. The roof is still a problem. It does have some areas that are caving due to the weight of the layers and the fact that wood shingles are attached to the rafters, not to deckboard, so adding the age of original roof and the 2 layers of composition shingles, this is why the sagging is occurring.
This is creating a new problem for the buyer. He will have trouble getting insured and he does not have enough money to cover the problems underneath the house and the roof, which is going to run around $7,000-$8,000 to tear out completely and replace properly. He was told this by a roofer he called out and was confirmed by our two roofers.
I do want to get out of this house and now I am facing the prospect that insurance may not cover the repairs. Looks like the buyer and I will be going back to the negotiating table soon.
Wednesday, June 25, 2008
Now, you may recall this offer was as-is. My agent said the buyer was still within their inspection window and could back out of the contract based on the inspection results. So I asked my agent, if the buyer can still request I make repairs and can still back out of the contract and get their deposit back if I don't make the repairs, what exactly does as-is mean? She had no satisfactory answer. I don't feel I really have the standing to fight this. The contract did state that, even though it was an as-is offer, the buyer still had the right to inspect the property. When I read this, I thought it meant they still had the right to enter the property before the close of escrow to inspect it. Apparently, other parties feel it means they still have the right to cancel based on the inspection results. In other words, the words as-is in the offer are meaningless. It ambiguous enough that I don't want to bother fighting it.
My insurance deductible is $1,000. We're going to call the insurance agent and have them send someone out to look at the roof and see if it warrants filing a claim. If it does, we are going to ask the buyers to split my deductible with me.
Looks like we definitely will not make our July 2 close of escrow date. I hope we can close before July 15 though, so I don't have to make another mortgage payment.
The loan is for 1 year with interest only payments at 12% with a balloon payment for the entire principle due at the end of the term. No prepayment penalties, standard late fees. The net to me is 10% since 2% is taken for the servicing of the loan. The first mortgage is for $156,000, so the loan to value ratio is between 45% and 48%, depending on which appraisal you use.
I'll refer to this investment as Hard Money #3, with #2 being the Louisiana deal and #1 being the small loan I did about three years ago.
Tuesday, June 17, 2008
Update: I got a fax of the offer this evening (I just had an email from the agent before) and, if I read it correctly, it looks like they accepted my counter-offer of $55,000. Strangely, the agent never faxed me the full contract for the offer. All I have is the addendum page and the page with the price, which was changed to show $55,000 and which I initialed. I'll get all the pages before I sign anything.
One very important fact the agent did not tell me: this is an all-cash offer! When the agent told me the buyer was approved to $57,000, she was incorrect. The letter from the bank, which I got a copy of, actually says the buyer has $57,000 on deposit with them. The contract addendum states this is a cash sale, the sale is as-is although the buyer can still inspect the property before close of escrow, and that I will pay property taxes through the close of escrow date. Note sure why the agent didn't think to tell me this was a cash sale. It's obviously a big plus for the buyer. Escrow is to close on July 2.
Wednesday, June 11, 2008
The cruise was fantastic! We went to several cities in Italy, Barcelona, Monaco, and Tunisia. This was my first cruise and now that is the only way I want to vacation! It's awesome! Fantastic food, relaxing accommodations. I couldn't ask for anything else.
Of course, being interested in real estate, I quizzed some of our tour guides about local real estate prices in the various countries we visited. In Monaco and Monte Carlo, housing prices start at 30,000 Euro per square meter. At exchange rates as of this writing, that works out to about $500,000 per square foot. But the good news is, if you make Monaco your residence, you won't have to pay income tax or inheritance tax, so if you have a high income (and if you are looking to live in Monaco, you do have a high income), you'll recoup your investment pretty quickly. We were in Monte Carlo a week after the Formula One Grand Prix, so we got to see the grandstands and pit garages, which were still set up, and drove on part of the course. In Rome, prices for buying an apartment in the city run around 1.5 to 2 million Euro. On the Isle of Capri, prices are even higher. (On a side note, we saw the Capri residence of Italian designer Versace. The house itself is modest, but the location makes it worth a fortune. It's the white house directly above the orange cactus flower in the picture. Click to enlarge.)
We also visited the Coliseum, the Vatican, the Sistine Chapel, St. Peter's Basilica, Sorrento, Carthage, Florence, the Blue Grotto, saw Michelangelo's David, went to the Uffizi Gallery (where we saw works of art by all of the Ninja Turtles), Barcelona, and so much more. I took over 800 pictures! (Thank goodness for digital cameras!) There is so much more to talk about from the cruise, but this is a real estate blog, so I will try to refrain.
Back here at home, things are moving along. Rental #1 has had the repairs completed and is now listed for sale. It's listed at $58,000, which is much less than I paid for it, but this is what my agent thinks it can sell for.
Multi #1 finally closed escrow at the end of May. The previous owner had started the process of raising rents and we will continue that process as lease come up for renewal. The capital improvements we planned are now starting to be implemented. The initial focus will be on touching up the paint, changing the sign (we had to change the name of the complex as a term of the sale), and installing a water feature. I look forward to seeing the first financial statement at the end of the month.
Thursday, May 22, 2008
Monday, May 12, 2008
Friday, May 9, 2008
I've decided to sell Rental #1, since it seems no one wants to rent it and it's in a bad part of town. My new PM company figures it needs about $1,500 worth of work to get it ready to sell. The new company is set up to accept payments over the internet using PaymentServiceNetwork.com. That service really seems to be geared more towards tenants paying rent than owners getting funds to managers, but I was willing to give it a shot. Unfortunately, the managers need to set up the people who they accept payments from before you can make a payment and they have not set me up yet. Since I wanted to get the repairs going as soon as possible on the property, I just mailed the PMs a cashier's check for $3,000. That should be enough to cover the repair costs and the $100 a month management fee they are charging me.
I've signed a management agreement but have yet to sign a listing agreement. The PM company has requested the last two appraisals I had on the property to assist them in setting the price. I will almost surely have to sell this property at a loss and it will most likely be to another investor. The neighborhood is 63% absentee owner. 80% of the rentals have rents under $499. Given that I had the place rented at $750, I do have some doubts about the validity of this data, however.
My first multi-unit investment is once again on track to close at the end of this month. After missing a couple of earlier escrow closing dates because they didn't have enough money raised, the prinicples finally have all the funds needed. Our loan interest rate has been locked in at 6.15%, which is higher than the 6% the original proposal used. During the extended escrow period, we have been getting copies of the financial statements each month to monitor the performance and the property is showing gains. The principles feel the pro forma goals can still be met, even with the slightly higher interest rate.
And finally, the last week of this month and the first week of next month, I will be out of the country on a two week European cruise! Woo-hoo!
Thursday, May 8, 2008
The bill was printed on March 28. I fired Bryan Properties on April 4. That's just one week after the bill was printed. OK, it's possible they didn't get the bill before I fired them. So when did they forward the bill to me? The postmark on their letter is May 1. They sat on the bill for a full month. To make matters worse, they had a $250 maintenance deposit from me. I just received that refund today as well and the date on the refund check is April 28. So they could have paid the bill using my own money, but they didn't even do that.
On the other hand, if they had been receiving monthly electric bills the whole time the property was empty, they were paying them with their own money. The bill was only about $20, but the place was empty for over 5 months, so that's over a hundred dollars they did not charge me. I got my full deposit back. So I get hit with a 1% late fee, which amounts to about 20 cents and I saved over $100. Sometimes their ineptitude works in my favor. This is all assuming they were being billed, that is.
Friday, May 2, 2008
I am sorry . We would not be interested in listing this property. It needs to managed and the management company would need to have about $1500 to maintain the yard and the property. I think it is going to need constant maintenance while it is for sale. It has been spray painted with graffiti the weeds are very high the utilities are cut off and the place needs to be cleaned. The back sill plate under the porch on the NW corner is rotted and disintegrated which will cause the porch to fall and some structural damage. We have people that provide these services for us but we would require a monthly management fee of $100 plus the operational funds necessary to maintain this property without getting citations for code violations. Without the management fee and operational funds I believe that it is more than we care to handle.
So I've agreed to sign on with them and pay $100 a month, rented or not, plus the costs of repairs that are needed to get the place in salable shape. But what really gets me mad is the fact that the old management company allowed the property to get into this shape in the first place. They obviously never visited the place in the five or six months they were supposedly trying to rent it. Yet another reason to avoid Bryan Properties.
Oh yeah...and I'll probably have to sell this property for less than I paid for it. So it's been an expensive education. More details on that when this is all over. But, the bright spot of all this is that I am now in a position where problems can be solved by just throwing money at them. Not the best spot to be in, but it is much better than being in limbo with no management company, no tenants, and no idea what is going on out there. After all, money is a renewable resource.
Thursday, May 1, 2008
I'm calling other management companies now, but if I can't find one soon, the place will be going up for sale.
Friday, April 25, 2008
I finally got the letter I requested from my old property manager stating that she was letting me out of the management agreement early. She claimed she never sent it to me before because she thought I just wanted a letter stating she got my letter, which she doesn't do. The most generous explanation would be that she never read my fax, because I clearly stated what I needed. Someone in the office probably got it and passed along the info incorrectly.
The letter was received last week and as soon as I got it, I called my new PM to tell her she could move forward on getting Rental #1 filled again. One bit of good news - along with the letter, the old PM also faxed me the names and phone numbers of two people who had contacted her about renting the property. I passed those on to my new PM as well.
The bad news is that I have still not been able to speak to my new PM in person yet. I've been calling every day for a week and have also sent email. Her cell phone was not being answered and, after day 3, I was no longer able to leave voice mail because she had no more room in her voice mailbox. The office number was answered by an answering service. Yesterday, I was able to leave voice mail on her cell phone again and today the answering service told me that there had been a death in the family and that was why she wasn't returning calls yet. I figured it had to be something like that. Anyway, I was told I would get a call back today around noon (which has come and gone). Unfortunately, the two parties interested in the property may no longer be interested after all this time has elapsed. Still, once the family issues have settled down for the new PM, I remain hopeful that she will be aggressively looking to get tenants in place for me.
The Houston apartment deal is set to close the end of this month. They still might be a bit short in raising funds and it might get pushed back one more month. I hope not.
I am also working on another 12% hard money loan. The borrower would be someone worth $5 - 10 million who is buying foreclosures at the courthouse. If the guy is willing to put up part of his interest in some North Dakota commercial real estate property (of which he has $5 million invested in property worth about $20 million) or part of his interest in a financial company (the one I was partnering with on the Louisiana deal), then I might do this. I've just had a very brief discussion with Les about this, so I'll have more info later, if it pans out. The 12% hard money deals are getting hard to find because interest rates are so low right now. But I'm not going to accept a deal just to get 12% if there are not substantial assets to back it up if the loan goes into default.
Thursday, April 17, 2008
This letter is to confirm the management agreement between us for the property located at ### Xxxx St. in Tulsa is canceled per your request. The keys and deposits are being handled per your instructions.
That's all it would take. About 3 minutes work to type, print and fax. But, according to the woman I spoke to, they "just don't do that." That's the only reason they offered, despite the fact that I explained that they are not losing any money by allowing an early cancellation. The only logical explanation for their refusal to do this is spite. The owner refuses to take my calls, so I am unable to hear her side of the story. One might imagine that they might be making one last push to try to get it rented during the 30 days cancellation period and salvage some money out of the deal. However, the property is no longer listed on their website, so even that excuse doesn't stand up. The only explanation for their behavior that is left is pettiness.
So, if anyone has properties in the Tulsa area and is considering using Bryan Properties to manage them, I suggest you first read about my experiences with them. Then I strongly urge you to consider using a different company.
Saturday, April 12, 2008
Thursday, April 10, 2008
Of course, this is just the Senate's version of the bill and the House version did not contain that credit... The credit will probably never come to pass, but it would be a nice present.
So in my fax on Friday, I asked them for written confirmation that they would release me from the contract. I have not received it. I called them on Tuesday and left a message requesting that. I called them again today. The owner is deliberately avoiding my calls now, since she was in but when the receptionist got my name, she was suddenly unavailable. So again, I explained what I wanted. The receptionist said they normally don't put any cancellations in writing and they just have to wait for the 30 day period to be up. I explained it made no sense for them to enforce the 30 day period. The lady said she would again talk to the owner and request written confirmation so that I could hire another property management company. She said even if they did waive the 30 days, they could only give the keys to the new managers. I would still have to wait 30 days for my deposit to be refunded. Sounds like a bunch of bull to me.
Friday, April 4, 2008
The contract I had with the old management company specifies I have to give them 30 days notice to terminate the contract, but I think they will waive that since they aren't getting paid anything while it is empty. The new management company is allowing me to just start with a leasing contract with them and I won't have to sign a management contract until they actually get someone in the place. I've instructed the old management to turn over all keys and deposits to the new management.
I must say, I am disappointed in the old management company. I spoke with them almost three weeks ago about lowering the rent to $750 a month, yet when I checked their website today, the rent was still listed at $800. The link to show a map of the property does not work and there are no pictures of the property. I should have fired them three months ago. Anyway...
I did find out some more info about the property, thanks to a fresh set of eyes viewing the property. The new management company sent someone out to look at the house. Their report is a tad disconcerting, but it does perhaps explain the problems faced by the old PM and highlights their shortcomings as well. The property is in gang land. I forget the exact name of the gang, but it is a latino gang. There is no doubt it is in gang land because the gang has spray painted their gang sign on my porch! (Why did the old PM not know about this or tell me?) It's not entirely a bad outlook though. This is just a little island of gang land and there are very nice homes and neighborhoods a few blocks away on either side. The PM thinks if I can hold on to the property for 5 years or so, the good areas will take over the bad and I'll then be in a good position. The question is can I hold out until then?
So the new PM has a marketing plan. The old PM has a sign up in the yard, but that is probably all the advertising they have done, apart from listing it on their website. The new PM is going to place ads in the Latino newspapers and local markets, written in spanish. They are also going to post flyers at the nearby hospital, which employs a large blue collar workforce and is within walking distance. They will advertise that they will not run credit checks or charge applicants an application fee (although they will still run criminal checks). They will also send over their maintenance guy for about 1 hour a day for a couple of days, so he gets some exposure and people see someone is there working on it. Painting over the graffiti could be done in less than a day, but by spreading it out several days, he has more visibility.
If the property is still not rented in 30 to 45 days, it will be put on the market and will most likely have to be sold for a loss.
The new PM is quite a talker, but based on the conversations I've had with her, I think she knows the area much better than the old PM and is much more savvy at marketing properties. I am mildly hopeful the place will rent soon.
Tuesday, March 25, 2008
I know some readers don't feel this is a good deal. Everyone is entitled to their own opinion, of course, but it has been pointed out that the setup of this investment has some significant advantages over other similar investments by other groups. The principals of this project have structured it so that the bulk of the cash flow goes to us investors - the 9% preferred return. The principals have not marked up the purchase price of the property and do not earn a commission on the purchase price. They charge a 2% fee simply for their time and effort in putting this together. Further, after the 9% return to investors, the profits will be split 50 / 50 between the investors and principals. However, if the annualized total ROI drops below 20%, the profit split changes to 70 / 30 in favor of the investors. In short, the principals make much more money if the deal performs as they projected.
Of course, the biggest point of dispute is how accurate those projections are. If there is no profit, no one gets anything. While some people don't think the projections are realistic, I trust the principals and their knowledge and experience in this area.
Escrow is now set to close at the end of April. I look forward to that happening!
Monday, March 24, 2008
This is an email I received from the ACLU today and it applies directly to all landlords in Arizona.
Currently, the Arizona House of Representatives is considering a bill that, if passed, would restrict housing for Arizonans, and cost the state of Arizona millions to enforce.
HB 2625 would prohibit landlords from renting to undocumented immigrants. Private landlords are not trained in immigration-related document review and verification, yet this bill would compel them to assess whether a tenant has presented proper documentation. Studies show that the elderly and disabled populations are much more likely to lack government-issued photo identification, like drivers' licenses, or ready access to birth certificates or citizenship documentation-so, if passed, HB 2625 would have potentially devastating effects on lawful residents.
In addition to punishing landlords by forcing them to act as federal law enforcement agents, HB 2625 would also violate the property and contract rights of both landlords and tenants, as well as federal fair housing and privacy laws, and disproportionately discriminate against Latino families.
HB 2625 raises serious concerns about procedural due process guaranteed by the Fourteenth Amendment to the U.S. Constitution. To date, not one anti-immigrant housing ordinance has withstood constitutional scrutiny anywhere in the country.
The Arizona House of Representatives will be voting on HB 2625 next week, and we need you to urge your Representative to VOTE NO on HB 2625!
Please contact your local Representative by clicking here
Tell your Representative that HB 2625 is:
- Bad for landlords
- Hurts U.S. citizens & authorized visitors
- Constitutionally suspect
- Imposes major enforcement costs
I know as a landlord, I would not want to get involved in determining the citizenship status of my tenants. At the very least, what if they have fake documents? How am I supposed to detect those?
Tuesday, March 18, 2008
Thursday, March 13, 2008
The ad started off by saying that private mortgage insurance, or PMI, is required on all loans where the loan to value ratio is greater than 80%. That's true. However, the ad then went on to talk about the declining housing market and how homes may now have lost equity. Your loan, the ad warned, may now be above an 80% LTV! Don't be hit with an added PMI charge on your mortgage - refi now!
First of all, there is truth in the statement that the housing market has declined and equity may have been lost, thus pushing your LTV over 80%. But, and this is the deceptive part, I have NEVER heard of any lender that regularly appraises the houses their mortgages are based on to make sure they stay above 80% LTV! Never! If the loan is being paid on time, no one at the bank is going to ask for a new appraisal. The ONLY time a new appraisal will be obtained is if the house is sold or the loan refinanced. In short, PMI will not suddenly be added to a mortgage that does not already include it, despite what the ad implies.
When you stop to think about this ad, it doesn't even make sense. If a loan truly did rise above 80% LTV due to falling home values, and the current loan did not have PMI, then refinancing it would only serve to ADD PMI, no matter what, because a new appraisal would be obtained, thus verifying the higher LTV.
Tuesday, March 11, 2008
The short version: I don't think it's gonna happen.
The longer version: The buyers have not raised enough money to be able to buy the place. They were looking to get a mezzanine loan for about $500,000 and the lender they had lined up decided not to make the loan. They are looking for a new loan or additional investors to provide the additional capital.
Escrow was supposed to close at the end of February, but the sellers agreed to extend it. The seller is willing to work with us, but I imagine there is going to be a limit to their patience.
If the deal doesn't happen, the buyers will look for other investments that might be available for slightly less. The investor's funds are currently in an escrow account earning interest. Should this deal fall through, we can get our funds back or elect to take part in any other opportunity that might be found.
Tuesday, March 4, 2008
The article doesn't touch on one of my pet peeves, namely that capitalism, by definition, requires some businesses to fail, or in this case, some loans to default and go into foreclosure. Capitalism is sort of a Darwinian financial system where only the strong survive. Whenever Congress or someone else steps in to prop up an industry, they are subverting free-market capitalism.
The article does, however, rightly point out that someone's loss is someone else's gain. There will be many families who are now able to afford a house they otherwise couldn't, all because another families had to get kicked out. Saying this does not mean I have a lack of compassion. It's merely the facts of Financial Darwinism.
Friday, February 29, 2008
Thursday, February 28, 2008
Monday, February 25, 2008
The management company is contacting him again and hopefully, I'll have a signed lease soon. He is paying the higher $800 rent, so I'm making some extra cash there. That will come in handy because my previous glee at finding out I was being charged a lower property tax this year turned out to be short lived. Over the weekend, I got an updated property valuation notice that my property tax will indeed be based on my purchase price, not the lower purchase price of the previous owner. This was to be expected and I used the higher tax amount in my analysis when I bought the place, but I thought I was going to get an extra year of the lower tax. No such luck.
I don't think this guy is a Section 8 tenant. I gave the management company the go-ahead to accept Section 8 tenants, but I think this guy found the place before the Section 8 inspection / approval process was finished. I'll have to verify this the next time I speak with the management company.
Thursday, February 21, 2008
No new news on the apartment deal. I suspect the principles are working away busily as escrow is set to close at the end of the month.
I also had a couple of leads on two new potential hard money lending deals, but those fell through. The people didn't need hard money after all. Too bad, as these would have both been 12% net to me. I'm on the lookout for others though.
My Rental #1 is still empty. I've got a call in with the management company to see how things are progressing towards getting a Section 8 tenant in there.
I'm getting antsy without any cashflow checks coming in!
Wednesday, February 6, 2008
Times are indeed hard in the California real estate market. I received a letter from the LLC manager stating what everyone already knows - the market sucks. Prices are depressed due to a flood of inventory, especially REOs and short sales. The LLCs have not been able to sell any properties. Since the companies are paid by taking 25% of the sales profits, no sales means no profits which means no income for the companies.
They have now exhausted their working capital. They are laying off about 60% of their workforce and those that remain will be taking a pay cut. They will also be moving to smaller, less expensive offices. They are asking the members to vote to change the operating agreement of the LLCs to allow the collection of a 4% annual maintenance fee to fund their ongoing operations. In return, they will forego their 25% stake in the profits. This will allow them to continue servicing the properties and give them additional time to seek alternative sources of income.
Personally, I'd like to refuse this request. One of the LLCs I am invested in was supposed to have closed a year ago and the investor's principle have been returned. That LLC is still operating because the properties left in inventory have not yet sold. I know they market is bad, but I have a hard time believing it can take a year to liquidate their inventory. I suspect they are still holding out for top dollar or close to top dollar. These properties were all bought at big discounts, so they should have some room to drop the prices for a quick sale. Of course, that's easy for me to say when I am not in the area and don't know all the details...
So despite my feelings, the reality is I have to approve this request. They currently have about 70 properties in their inventory, spread over 5 counties. It is in my best interests to allow them to continue to use their knowledge of the properties to get them sold.