Today I made another real estate investment. I'm a hard money lender in a first mortgage on a single family home in Oakland, California. This was a property the buyers picked up at a foreclosure auction. The amount owed on the defaulted mortgage was $495,000. The bank set the opening bid at $202,000 and the buyers got it for one cent more than the opening bid. There is probably about $25,000 worth of repair work to be done to it and three independent people have appraised the property at $325,000 to $350,000 after repairs. The buyers are contractors and each is a multi-millionaire. Les, the guy who I partnered with on my previous hard money deal in Louisiana, has known the buyers for over a decade and has found them to be very honorable.
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.