HML #15 Closed And Apartment January Financials.

Escrow closed on this property on Monday, so hard money loan #15 was paid off. Looking for another place to invest now.

The January financials for the apartment have arrived and, as we expected, things continue to improve. Occupancy increased to 93%, up from 88% in December. Revenue increased by $5,000 and management expects the same increase for February. Our property tax impound amount will drop by about $8,000 per month with the March payment following our successful property tax valuation appeal last August. The property still lost money in January, but occupancy is heading up and expenses are heading down, so we are moving in the right direction. For January, our budget called for an $8,500 loss and our actual loss was closer to $11,500, so we are $3,000 off of our budget. If trends continue, we should be looking good for February.

Another Hard Money Loan Started

Hard money loan #16 kicked off a few days ago. This is a loan on a property bought at foreclosure auction in Antioch, California, which is east and a tiny bit north of San Francisco. The borrowers are two people who have borrowed from us before. They purchased the property for $220,000. (The bank took a $400,000 loss on this one - ouch!) Our loan, secured by a first mortgage, is for $162,000, giving a LTV ratio of 73%. The borrower tells us he already has a buyer in line for the property at $270,000. (Until we're in escrow, I wouldn't hold my breath. Deals fall apart all the time.) My partner figures it's worth between $270,000 and $280,000. This seemed like it was a fairly hot property at the auction - there were a total of 8 parties bidding on it. The property is a two story single family home of about 2,300 square feet. It was built in 2000 and has 4 bedrooms and 2 baths. A nearby comp is currently in escrow for around $255,000 and it sold quickly at that price with multiple offers. And it still needed paint and carpet and is a slightly inferior model.


Standard loan deal - 1 year, interest only payments, 9% net to investors.

Apartment Had A Bad December

The financial report from the Houston apartment complex for December was not good. Occupancy dropped to 88% due to a large number of move outs in November. About 40% of the move outs were people who left without notice. This most often happens after a job loss, so it would seem November was a bad month for unemployment in Houston. The good news is occupancy is currently back to 92% with 96% leased. Still waiting for the clarification on the difference between "occupied" and "leased," but I'm guessing "leased" includes people who have signed leases but have not yet moved in or started paying rent - for instance, people waiting for the first of the month to move in.

Rent concessions, which I wrote about last time as something I hoped would be able to be reduced, went up, due I'm sure, to the large number of unexpected move outs. New playground equipment was installed, which should attract more renters. One half of the cost of that was paid for from funds in the lender's replacement escrow account, so it did not affect cash flow.

Hopefully, December was just momentary setback on the path to recovery. Management expects January revenue to be only slightly improved due to the increased rent concessions, but they think February will see a decent increase in revenue. The loss for December was approximately $7,500 compared to a loss of just $1,500 in November. The biannual investor conference call is coming up soon, so hopefully, we will get some more detailed information then.

Risk Factors That Will Increase Your Mortgage Rate

Fannie Mae has a matrix (PDF) that shows what risk factors will increase your mortgage interest rate and by how much. Of note to real estate investors: investment properties will add at least 1.75%. (But then, we all knew mortgages for investment properties cost more.) The matrix also shows how much your rate will increase based on your credit score. They also give the adjustments for condos, manufactured homes, 40 year loans (as opposed to the normal 30 year) and some other scenarios. Interesting reading.