Thursday, December 29, 2011

Apartment Update

Received the November report for the Houston apartment complex and it was not good. Occupancy has dropped to 89% with 26 move-outs, 12 of which were without notice. So rent concession costs increased to fill the empty units. Expenses are still going lower, which is a small positive. Some exterior wood replacement needed to be done that cost $31,000 but that was paid directly from the replacement escrow account with our lender, so it did not affect cashflow. The manager's report includes this ominous phrase: "...outstanding aged accounts payable continue to place considerable strain on property operations." Total revenue for November was $175,000 and the balance sheet shows $233,000 of Accounts Payable, so yeah, I can see that would cause a strain.

Truthfully, I am getting tired of this investment. I don't think the investors have gotten a payment in over a year. I know the problem is high unemployment and the soft economy, but it gets pretty old hearing month after month that the place is just limping along. This investment was made with an eye towards capital gains, not monthly income, so I need to keep that in mind. Still, it is somewhat frustrating to know there is little that can be done to turn things around. I guess I am still used to the rehab mindset of being able to improve a property and sell it.

I'm starting to see why my hard money lending partner likes lending so much. Rentals require dealing with tenants and repairs, etc. Investing in apartment complexes does too, although a management company keeps those factors one step removed from the investor. Hard money lending on the other hand, is relatively hassle-free, once you have a set of good, regular borrowers lined up. Lending also lets me spread out my investment over several properties, reducing the risk from any single one. I think once this apartment investment ends, I'll stick to hard money lending. You do lose out on all the nice depreciation deductions and tax-deferral options though.

Friday, December 23, 2011

And Now For Something Completely Different

I wasn't going to write about this, but since it's the holiday season, I figured now would be a good time.

About a year ago, I came across Kiva.org, a microlending site. It's similar to Prosper.com in that it works by people lending money to other people. The difference is the other people are in third world countries and are taking small loans to help improve their situation by opening or expanding a business. Kiva charges no fees and 100% of the money you lend goes to the borrower. Like Prosper, you can search lists of people looking for loans and select the ones you want to lend to. But, and here's the reason I originally wasn't going to write about this, the lender (you or I) gets no interest. There is no return on investment for the lender other than the satisfaction of helping someone in another country improve their lot in life.

Kiva works by teaming with field partners in various countries who are the ones who actually fund the loans and collect payments. More information can be found here. The borrower does pay interest on the loan, but that is kept by the field partner.

As with Prosper, there are risks - namely that your loan won't be repaid. Additional risks involve currency exchange rates, political unrest, and all the other risks that come with investing in another country. But Kiva lets you start lending with as little as $25, which is what I've started with. If my loan defaults, I'm only out twenty five bucks. I can handle that. I've made one loan so far to a woman in San Salvador to expand her business of selling cosmetics and small household appliances. The loan was for 20 months and is 55% repaid. My sister-in-law has been lending through them for a couple of years and has made 3 or 4 loans so far.

If this sounds like something you are interested in, please check out Kiva.org. Have a happy holiday season!

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