The property that is the collateral for hard money loan #6 fell out of escrow and is now back on the market.
Nothing much new to report. I've been working on getting my paperwork together for my taxes. The four flipping LLCs I am invested in in California all reported losses last year. The amount ranged from 1% to 3% of my investment. I'll be taking the losses as deductions on my taxes. On the positive side, the people running those have some other LLCs they recently started that are showing profits now. Perhaps the California real estate market is starting to turn around. Either that or they are able to buy at serious discounts.
I just finished reading The Snowball: Warren Buffett and the Business of Life, a biography of Waren Buffett. I recommend it to anyone interested in business or investing. The first one-third was somewhat hard to get through for me because it dealt mainly with Buffett's ancestors and how they came to America and what they did. The latter part of the book was much more interesting, especially since, having been a Berkshire shareholder since 2000, I was reading about events I had heard about through Buffett's annual letter to shareholders.
I am also about 2 chapters into The World Is Flat 3.0: A Brief History of the Twenty-first Century and I can already tell this is another must-read book for anyone interested in business. My wife is taking classes for her MBA and this was one of her textbooks. I'm glad she convinced me to read it.
Tuesday, March 3, 2009
Monday, February 23, 2009
Update
Time for another monthly report on the Houston apartment complex! In short, everything seems to be going according to plan. Income and expenses are pretty much on-budget, once the repair expenses from the hurricane are reimbursed from the renovation impound account. Also, the hurricane repairs are now complete, so there will not be any more of those expenses going forward. Management is working on upgrading the office entry and resurfacing the swimming pool deck to enhance the overall look of the property. Cash flow for January was just over $20,000. Occupancy dipped in January to 94%, which apparently is typical after the holidays. At the time the monthly report was written (last week), occupancy was back up to the phenomenal 97% again. In going over the financial reports, I see we made close to $400 in pay phone income. That surprises me. I can't believe pay phones get that much use anymore! To put that figure in perspective, the pay phone income was about $20 more than the income from the laundry machines last month and 50% than the income from the vending machines. I should find out if we are getting any sort of monthly payment from a phone company to have the telephone on the property.
As I wrote about last time, hard money loan #6 should be closing soon. I don't have a specific date for when the sale will close escrow, but I am guessing it will be the end of the month.
And finally, next month, my one remaining loan from prosper.com will be paid off. I'll be glad to be able to get rid of that thing. Three of my for loans defaulted and the final one was only bringing in about $3 a month. Hardly worth the time I had to spend keeping track of it.
On a personal note, last week, I achieved my Microsoft Certified Technology Specialist certification for SQL Server 2005. Whee.
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As I wrote about last time, hard money loan #6 should be closing soon. I don't have a specific date for when the sale will close escrow, but I am guessing it will be the end of the month.
And finally, next month, my one remaining loan from prosper.com will be paid off. I'll be glad to be able to get rid of that thing. Three of my for loans defaulted and the final one was only bringing in about $3 a month. Hardly worth the time I had to spend keeping track of it.
On a personal note, last week, I achieved my Microsoft Certified Technology Specialist certification for SQL Server 2005. Whee.
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Tuesday, February 10, 2009
Hard Money Loan #6 Wrapping Up
It was just a short couple of months, but Hard Money Loan #6 is closing sometime this month. No late payments and everything is in good standing. We got a call from a title company asking for a payoff amount, so the property is in escrow and will be sold. I should have my funds back by the end of the month.
There is also another apartment investment opportunity on the table right now. This is another apartment complex in the Houston area and is being offered by the same group that found Multi #1. The terms are close to the same and in other circumstances, I would invest in this property. However, this investment only distributes profits quarterly and right now I am looking for something with a monthly distribution. That likely means another mortgage on a single family home, like HML #6 was. I also like having a combination of short term and long term investments. The apartment investments are typically for 3 to 5 years while the hard money loans are 1 year or less.
There is also another apartment investment opportunity on the table right now. This is another apartment complex in the Houston area and is being offered by the same group that found Multi #1. The terms are close to the same and in other circumstances, I would invest in this property. However, this investment only distributes profits quarterly and right now I am looking for something with a monthly distribution. That likely means another mortgage on a single family home, like HML #6 was. I also like having a combination of short term and long term investments. The apartment investments are typically for 3 to 5 years while the hard money loans are 1 year or less.
Thursday, January 29, 2009
Apartment Update
Last night was the first of our biannual conference calls regarding the apartment complex in Houston. The managers gave us a general overview of the Houston economy and then of the property itself.
Nationwide, occupancy rates are easing and rent growth is cooling. The Houston market is also expected to cool, although not as much as the rest of the nation. There are many new A-class (higher end) apartments just opening up and they will be the hardest hit with pressure to lower rents. B-class apartments, like the one we have, won't feel the pressure so much. There will also be some pressure from the "shadow market" - the single family home foreclosures and other houses that investors and buying and turning into rentals.
The silver lining in all of this is that apartments are still a relatively good investment. An emerging trend report released last week said apartments were the number one buy for 2009.
Another positive is that Houston led the nation in apartment absorption in 2008 and led the nation in job growth in 2008 as well, with 53,400 new jobs and continues to led in this category.
Rents per square foot are trending upward. Historical occupancy rates for Houston were about 89% for 2008. We were well above that. Here is a chart I snagged from the presentation showing occupancy rates for all of the Houston area, the Westgate area (which is a small section of Houston where our apartment is located), and the occupancy rates for our building since we took ownership. The greenish-yellow line is our building.
It looks like the selection of Houston as a place to invest in was a wise decision by the managers of this investment.
Specifically related to our apartment:
When we purchased the property, we had planned on installing a playground area. We since discovered there are not many children in the development, so we will be making seating areas for reading and picnics instead. The majority of the repair work from the hurricane damage is done. Over half of the costs will be repaid from a repair impound account our bank makes us pay into each month, so cash flow will not be affected much.
The projected cash flow when we were evaluating the property for the period of July to December 2008 was $271,000. Our actual cashflow, adjusted for the hurricane damage costs, was $298,000. Our current ROI is 9.9%. Looking forward one year, management has given us three scenarios, based on how revenue trends. If it stays flat, our ROI will be 9.6%. If it rises by a nominal 2%, it will be 9.85%. If it rises by a moderate 5%, it will be 11.1%. Management's best guess is that revenue rise will be somewhere between 2% and 5%.
We also received a one month profit distribution (instead of the normal quarterly one) to sync up the distributions to a calendar quarter basis going forward.
Keep in mind, the goal of this investment is to increase the value of the apartments by increasing occupancy, raising rates, increasing cash flow, and then sell it after a few years for a profit. We are shooting for an annualized 13% ROI when we sell. So while a 9+% ROI is decent for an operating return, we are really looking to make money in the future.
Nationwide, occupancy rates are easing and rent growth is cooling. The Houston market is also expected to cool, although not as much as the rest of the nation. There are many new A-class (higher end) apartments just opening up and they will be the hardest hit with pressure to lower rents. B-class apartments, like the one we have, won't feel the pressure so much. There will also be some pressure from the "shadow market" - the single family home foreclosures and other houses that investors and buying and turning into rentals.
The silver lining in all of this is that apartments are still a relatively good investment. An emerging trend report released last week said apartments were the number one buy for 2009.
Another positive is that Houston led the nation in apartment absorption in 2008 and led the nation in job growth in 2008 as well, with 53,400 new jobs and continues to led in this category.
Rents per square foot are trending upward. Historical occupancy rates for Houston were about 89% for 2008. We were well above that. Here is a chart I snagged from the presentation showing occupancy rates for all of the Houston area, the Westgate area (which is a small section of Houston where our apartment is located), and the occupancy rates for our building since we took ownership. The greenish-yellow line is our building.
It looks like the selection of Houston as a place to invest in was a wise decision by the managers of this investment.
Specifically related to our apartment:
When we purchased the property, we had planned on installing a playground area. We since discovered there are not many children in the development, so we will be making seating areas for reading and picnics instead. The majority of the repair work from the hurricane damage is done. Over half of the costs will be repaid from a repair impound account our bank makes us pay into each month, so cash flow will not be affected much.
The projected cash flow when we were evaluating the property for the period of July to December 2008 was $271,000. Our actual cashflow, adjusted for the hurricane damage costs, was $298,000. Our current ROI is 9.9%. Looking forward one year, management has given us three scenarios, based on how revenue trends. If it stays flat, our ROI will be 9.6%. If it rises by a nominal 2%, it will be 9.85%. If it rises by a moderate 5%, it will be 11.1%. Management's best guess is that revenue rise will be somewhere between 2% and 5%.
We also received a one month profit distribution (instead of the normal quarterly one) to sync up the distributions to a calendar quarter basis going forward.
Keep in mind, the goal of this investment is to increase the value of the apartments by increasing occupancy, raising rates, increasing cash flow, and then sell it after a few years for a profit. We are shooting for an annualized 13% ROI when we sell. So while a 9+% ROI is decent for an operating return, we are really looking to make money in the future.
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