Friday, April 9, 2010

One loan ends, another starts.

Sometimes everything just falls into place at the right time. Hard money loan #10 was paid off and just a day or two later, another opportunity came up. I can roll my funds into that one with no time spent not earning interest while searching for a deal.

The new opportunity is a single family house, 5 bedroom, 2.5 baths,  in a nice area of San Leandro (Northern California). The borrower is a well-experienced borrower who we have done business with in the past. At the height of the real estate boom, this property sold for over $800,000. Of course, that’s pretty much a worthless number now and I am always amused when I see such figures in the analysis data that gets sent to me. The more important numbers are as follows: The property was bought at auction for approximately $475,000. The buyer is putting  25% of his own money into this and we are lending the remaining. After repair value of the property is approximately $560,000 with an average days on market of just over 1 month. Using the ARV of the property, our LTV is 63%. Using the buy price, it is, as mentioned, 75%. Nearby and similar properties rent for just over $2,700 a month, so if we foreclose, we are looking at $33,000 gross rental income per year. It is in a stable neighborhood (few other houses for sale).

Here is a picture of the front of the property. There isn’t much fix up needed and the property is already vacant. We expect this loan will be paid off in 3 to 6 months, although the loan term is for 1 year. Standard deal – 10%, interest only, 1 year balloon, no pre-pay penalty. This will be labeled hard money #12.



All is not quite so rosy with the apartment complex in Houston. The last month I have data for, February, showed a decline in revenue, even as occupancy increased. This was due to increased concessions to get people to move in. Occupancy is fluctuating between 88% and 90% as the area continues to be hit by poor economic conditions. Cashflow is running breakeven. Management expects it to remain this way through the end of the first quarter and to pick up in the second quarter, as occupancy is increased.

Hard money loan #4, the motorcycle loan I did for a co-worker, should also be paid off in a day or two. I was told the payoff check was mailed yesterday.

The self-directed IRA is proceeding slowly, mainly due to a comedy of errors. First, I filled out the wrong paperwork to get the thing started. The company I am working with created an LLC for me. They were waiting for some paperwork to be mailed to them from the Arizona Corporation Commission. But the ACC mailed the paperwork to me, because I am the manager. It wasn’t until a month went by that I found out they were waiting for paperwork I had already received. I faxed it over to them last week, and I think that is all they need now. They have to send me my LLC documents, and then I can go open a bank account.

On a personal note, my wife and I each picked up a new 2010 Prius two weeks ago. We are both loving the cars. I’m averaging 53 miles per gallon, despite having a daily 66 mile round trip commute, mostly at highway speeds. I love being able to fill the tank less often and for less than I did with my old Avalon, which took $42 to fill up. The Prius takes $21. We each got the solar package, which uses a solar panel in the roof to power a fan to exchange the air in the car with outside air while it’s parked in the sun, keeping it cooler. Here in Arizona, that’s a huge benefit, especially since we haven’t gotten the windows tinted yet. With the purchase of the cars, we went from having no car payments to two car payments, so the passive investing income I’m getting will come in handy.

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