Subscribe: Shaun's Real Estate Adventures
Added By: Feedage Forager Feedage Grade A rated
Language: English
apartment  bad  cash flow  estate  good  income  investment  loan  management  money  month  mortgage  property  sale  year 
Rate this Feed
Rating: 1.8 starRate this feedRate this feedRate this feedRate this feed
Rate this feed 1 starRate this feed 2 starRate this feed 3 starRate this feed 4 starRate this feed 5 star

Comments (0)

Feed Details and Statistics Feed Statistics
Preview: Shaun's Real Estate Adventures

Shaun's Real Estate Adventures

Here is where I detail my adventures in real estate. It's meant for people who want to get into this investment area but need some encouragement, help, or just a general push in the right direction. Hopefully, by detailing all my experiences, you'll see i

Updated: 2018-02-20T22:00:23.933-07:00




(This is a sponsored post...)HOW TO GET OUT OF A BAD MORTGAGE? Mortgages are something we often fight for. We’re looking around for the best possible mortgage we can get our hands on, and then, when we finally have it, we can’t wait to get rid of it. Yes, it may be one of the most obvious examples of the paradoxical nature of finance, but here we are.Mortgages are a great way to get into the house you’re dreaming about for you and your family. However, finding a good mortgage deal depends on the way we strike a deal with the lender or bank that grants us the mortgage. If the mortgage is barely manageable, we might have a problem on our hands.A bad mortgage deal is not the only thing that can get us down in the long run. Even if you get the best deal possible and have a credit score of 800 points, you might fall victim to unforeseeable circumstances down the line. The newest example being the housing crisis of 2007.What is a bad mortgage?The obvious answer to the question “How to get out of a mortgage?” is to pay it off. However, if you find yourself with a bad mortgage, this might not be so easy anymore. The phenomenon of negative equity has taken over the consciousness of many homeowners in the US.Negative equity occurs when the value of an asset (in this case a house) is lower than the outstanding amount you owe on the loan given to acquire the house in the first place. For example, you bought a house at a price of $200,000 and that house is suddenly worth only $120,000, your negative equity is $80,000. So, you still have to pay the whole sum of $200.000 to pay off your loan, although the real value of the house is now much lower.This is considered a bad mortgage because you are not able to pay off the mortgage even if you decide to sell the house. You would still owe $80,000 to the lender, which is probably not fair, but, on the other hand, inside the boundaries of the law.How to get rid of bad mortgages?If you’re able to pay off the loan as agreed upon, DO IT. This is the most obvious answer, but it is also the thing that will keep you in the green once you’re done with it. However, if the mortgage becomes unbearable, there are other solutions that you can use in order to get rid of a bad mortgage.Walk away from the mortgage. Yes, you heard me. Walk away from it, and let the lender deal with the decreasing value of the property. This will of course force you to leave that house, but if you see no alternative, you should be prepared for this. However, once you decide to do this, be aware that your credit score will go down by some 150 points immediately (use to check your free credit scores instantly).This might do much more damage than walking staying with the mortgage, as no other lender will ever look at you the same way once you walk away from a mortgage you already signed.The second solution is maybe a bit more awkward than simply walking away. TALK TO YOUR LENDER. See if there is a possibility to refinance the whole thing so everybody gets something out of it. If a mortgage is granted due to be paid off in 35 years, for example, maybe it can be refinanced to prolong it to 45 years, for example. In the best case scenario, you might strike a new deal with the lender, making it much more realistic in the current context you’re living. You might not get the deal you would get if you’ve been applying for a new mortgage, but at least you will take off some pressure from your current situation.ConclusionIn the end, it is always better to strike a good deal, than to strike any deal. If a mortgage is not ideal, there’s sometimes little you can do about. However, if a mortgage is absolutely horrible, it’s better to be patient until a better deal comes along.[...]

Interview with Trimark Properties, Gainesville Real Estate Developer


(This is a sponsored post...)Matthew Luedecke - Commerical Real Estate Manager at Trimark Properties I’ve learned a lot about real estate investment in the last few years, but it’s always helpful to speak with other people who are working in the field. I recently sat down with Matthew Luedecke, Commercial Real Estate Manager at Trimark Properties, and spoke with him about his real estate career and how he got started in the business. He also shared some important advice that I thought would be helpful for my readers. Thank you for doing this, Matthew.Thank you! I’ve been looking forward to this interview for weeks. Well, let’s jump right in. How did you get into the real estate business?I started as a leasing agent in the multifamily division at Trimark Properties in Gainesville, Florida. I worked part-time while I was in college, primarily renting luxury apartments in Gainesville like Sabal Palms and Estates at Sorority Row to students attending the University of Florida. Working with students to find housing was fast paced, and at Trimark, I had the advantage of working directly with the development team and the marketing team, so I was exposed to multiple sides of the business. The owners took me under their wing and taught me about the financial side of the business as well. It was a great start for my career.Do you think that leasing is a good way for someone to learn about the real estate development and investment?I don’t think that it would be helpful for everyone, since most leasing offices aren’t set up the way that Trimark is. Most leasing agents work for a single apartment complex that is separate from the company’s corporate office. In that way, they are really limited. They aren’t trained on development or marketing, they don’t develop strong sales tools, they aren’t given a lot of training on the finance side. But at companies like Trimark, which works as both a real estate developer and property management company, you really get a robust training on all aspects of the industry, from conception and prospecting through design and building, into marketing and launch, through sales and renewal. You learn the investment side. I would certainly recommend others to try to work for a company like Trimark, if they can find a similar set up.What was your favorite part of working in the apartment leasing side?I really enjoyed leasing Trimark’s apartments near UF. Trimark owns 22 apartment complexes that are within 2 blocks of UF, and there’s a lot of demand for these apartments. They are very upscale, so I really liked the apartments themselves, and it was easy to lease them, since I really believed in the product. Obviously, it’s really easy to enjoy renting something that is top of class: best location, best amenities, best floorplans, biggest apartments. I also liked working with the development team for the apartments near UF Sorority Row. I worked at Trimark while they developed Solaria and Tuscana, and those apartment complexes were steps from UF Sorority Row and catered to students who wanted the absolute best. The apartments at Tuscana were inspired by the architecture and landscaping found in the Italian countryside, and the exterior of the apartment complex is really amazing. It certainly doesn’t feel like other apartment complexes near UF—it has a formal lawn, two large fountains, an entry arbor with grapes for making wine. It’s really in a class of it’s own. Inside, the apartments had luxury amenities like granite countertops in the kitchen, electric wine chillers, and oversized living rooms. These aren’t standard apartments in Gainesville at all!  How has your career grown over the years at Trimark?I started working in the multifamily division, leasing student apartments and then working with Trimark’s off campus luxury dorms for UF students. Trimark owns two luxury dorms, Windsor Hall and Ivy House. The luxury dorms are very unique. They were the only private residence halls for University of Florida students, and they were locate[...]

My eBook is now available for the Kindle on Amazon!


OK, I know last time I said I was done updating this blog, but I just wanted to pass on one more bit of news:

My eBook, which I was previously selling myself, is now available exclusively for the Kindle via Amazon!

I've dropped the price down to $3.49. If you are a subscriber to Kindle Unlimited, the book is available for free as part of your subscription. If you are an Amazon Prime member, the book is available for free as part of that service via the Kindle Owner's Lending Library.


Closing One Door, Opening Another


With the end of the Houston apartment investment, I think it’s time to bring this blog to a close. I’m still going to be investing in real estate, but it will most likely continue to be via hard money lending and, quite frankly, blog posts along the lines of “I made another loan” and “Another loan got paid off” don’t really make for the most exciting reading. I am going to leave this blog up though, because I think it provides some good reference material. I also am starting a new project that puts into practice the lessons I’ve learned in REI. More details on that at the end of this post.I started this blog almost exactly ten years ago, in the midst of the big real estate bubble. In those ten years, I’ve flipped a couple properties, owned a couple rental properties, made dozens of hard money loans, invested in a commercial property, and invested in an apartment complex. So what did I learn from my ten year real estate adventure?Flipping / RehabbingOf all the real estate investing methods I’ve tried, flipping provided some of the biggest returns. And truthfully, I actually enjoyed it the most. I really liked taking a property that was beat to hell and fixing it upso someone could live in it again. However, rehabbing requires a lot of work, even if you aren’t the one doing the actual rehab. You need strong planning and organizational skills. You need a good handyman / contractor (or more than one). You need knowledge of the area to make sure you buy in neighborhoods where you can make money. It helps to have a good Realtor you can work with for all your deals and who will give you a discount on commissions. It’s difficult, but not impossible, to flip properties on the side while you hold another job. (That’s what I did.) It helps if your job is flexible and you have the ability to take off at a moment’s notice when emergencies arise. Flipping is a cash-intensive business and you need to have enough money available to cover those unforeseen problems that always come up.RentingOwning rental property was also fun. It’s nice having checks mailed to you each month, especially when you have good tenants. The problem is finding tenants that will mail you a check every month! Tenants that don’t pay really suck the fun out of the process :-) Evictions are also no fun. I was lucky to find a company that handled the process with minimal input from me (and I never had to actually evict anyone – just threaten some tenants with eviction), but even so, it’s one more thing you have keep track of and worry about. Then there’s the property repair and clean up after each tenant moves out. It’s normal and you plan for it, but it’s still work. Property management companies can help with some of the details, but they cost money and never do things the way you would, nor do they seem to be as concerned about expenses as you are. They can also be quite unresponsive if you only have 1 or 2 properties listed with them. On the other hand, as a rental property owner, you get some nice tax breaks - you can lower your taxes via depreciation write-offs and even delay taxes indefinitely using 1031 exchanges. Still, being a landlord requires a good amount of work, not the least of which is paperwork. It’s nowhere near as easy as people like Robert Kiyosaki would have you believe. You’ll likely need to hire an accountant if you own rental property, or at the very least, use one to prepare your taxes to get the full benefits of the tax breaks. Hard money lending This is my preferred method of real estate investing – I’ve made over 30 hard money loans. It is perhaps the most passive way to invest in real estate. If you are doing it on your own, the risk is inversely proportional to your knowledge: You will need to become familiar with the real estate values in the areas you are lending in. You’ll need to become proficient at estimating not just the current value of a property, but what it will be worth after it has bee[...]

Apartment Investment Final Analysis


First off, for those of you that were wondering, this is the apartment complex I was investing in. My distribution check arrived yesterday. I got the return of my principle and all of the accumulated interest since the last payment. Looking back in my records, I see that I received five payments in the first year after we bought the property, then nothing until now, as the economy soured and investor distributions were halted. So, if I've done my math right, factoring in those previous payments with what I received today, I earned an annualized 9.05% return over the 6 years that I was invested in the property. Another way to look at it is I earned a 55.05% total return. That number may inch up a bit after the investment company is closed and the funds that were held back for expenses are released. (The number is slightly elevated from preferred 9% return because back in August 2008, we earned some interest while our funds were sitting in the bank waiting for the initial purchase to be completed.)Our investment agreement with management specified that the investors receive a preferred 9% return. This means that, on sale of the apartments, all profits would go to the investors until they received an annualized 9% rate of return. After that, the profits would be split 50-50 with the investors and the management company we used (or 70-30 in the investors' favor if the property did not reach a specific ROI goal). When I first invested in the property, I did so with the intent that this was an investment more for capital gains, rather than the 9% return. Things obviously didn't go they way I planned in that regard, but that doesn't mean I'm disappointed. A 9% return is nothing to sneeze at - that is also the rate I earn right now on my hard money loans. Originally, I had hoped for a return in the 30% range and, had the economy not tanked, I think this was possible. Actually, with the way the property has been performing the last 9 months or so, I think if we held off on the sale for another year, we could have come close to that figure.So why did we sell now? The main reason was that the majority of other investors wanted to sell. They likely got sick of the lack of quarterly distributions. Additionally, the property was getting to the point where additional funds would be needed to add improvements and do an overall facelift of the buildings - similar to what we did when we bought it. That would mean another cash call to investors and I don't think people were willing to pony up more money. In fact, I know the new buyers are planning on spending about $1 million on improvements.For the sale, we had offers from two buyers. One was an unrelated party and the other was the current management company. The management company was the winner. I was a bit concerned about a possible conflict of interest here when I found out they were one bidder because, obviously, the management company knew the details of our investors agreement. This meant that theoretically, they could figure out exactly how much to offer to exactly meet our 9% return and not offer a penny more. Of course, it also meant that, due to the nature of the agreement, any amount they wanted to offer above that amount could basically be doubled - because they would get half of that amount back at closing due to the 50-50 split clause. This would make their offer much more attractive than another party's at a lower cost to them.But in the end, that wasn't why they won. They got the sale because they were willing to assume our loan. The other party was not going to do that. Our loan had a $1.5 million early termination fee, so the assumption saved us a ton of cash. It was also what delayed the closing for a couple months. We had to get approval from the lender for the loan assumption.All in all, I'm glad I made this investment. It was a great learning experience. Apartment investing is really more like investing in a business than real estate. I would definitely do [...]

Apartment is sold!


I received word that the sale of our apartment complex finally and actually closed on Friday. Hooray! Our group of investors received net proceeds of $4.39 million on the sale. (Note this is net proceeds, not profits!) Four million of that is being distributed to us next week, with the rest of the funds being held back to cover any remaining company expenses that might come up during the closing of the company formed for the investment. Any funds left after that will then be distributed to investors. We made enough to cover our preferred 9% return.

I'll post a more detailed analysis of the final investment returns once I receive the check. However, I'm also going on vacation next week. Even if I receive the check before I leave, I doubt I'll have time to do a write up before I go, so the final report on this investment probably won't happen until the beginning of July.


Apartment Sale Closing (Again)


As I mentioned last time, the sale of the Houston apartment was supposed to close a week ago yesterday. I've been out of town until today and did not have anything waiting in my email or postal mail when I got back, so I sent an email asking for a status update. I heard from the manager about 5 minutes ago and the sale is supposedly closing today. I'm not holding my breath, but since the day is half over and I'm still being told it will close today, I am slightly more hopeful than I might be otherwise.(image)

Apartment Sale Closing In Two Weeks


It appears the sale will be finalized now on June 5th. We have received approval of the loan assumption, which was what was holding things up for the past several weeks. Management has said they are now in the process of preparing the closing documents for close of escrow on the fifth.

Nice..This will close a few days before I head to Las Vegas :-)


March Apartment Update


It's very late this month, but the March numbers for the Houston apartment complex have arrived. Occupancy remained at 96%. Total revenue rose to $204,000, up slightly from February's $201,000. Total cash flow for the month was just over $23,000. This is the highest it's been this last November, when it hit $25,000 and almost double what it was last month. Where did the extra money come from? Rent concessions were down about 40% over February and our apartment turnovers expenses dropped from almost $4,000 to about $700. Repairs and maintenance costs and utilities costs were also lower. The property is currently running about $49,000 ahead of the budgeted profit for the year. That's good news. It almost makes me wish we weren't selling it.

Based on the numbers, it would appear the Houston area economy is turning around. Rent concessions are down, bad debt write offs have dropped, bad debt collection increased, and apartment turnover expenses  dropped sharply (meaning people aren't moving out as much).

Speaking of which, the closing date for the sale has been pushed back until mid-May for no other reason than the loan assumption process is proceeding more slowly than anyone thought. Management says all is going well and they don't foresee any material issues arising that might jeopardize the closing.


February Apartment Update


Things continue to cruise right along at the Houston apartment complex. Occupancy remained the same as last month at 96%. Total revenue was $201,000, a small decline over January's $204,000. Cash flow was a positive $12,000 for the month. The $6,000 drop in cash flow over January was due to our lender not collecting the appropriate amount for escrow. They need to collect a bit extra for a while, then the escrow amount will drop back to normal. The good news is that, even with the temporarily increase escrow collection, the property's cash flow is still $27,000 over budget. Granted, it's only the second month of the year, but that's a good sign.

No word on the sale of the property, which I am taking to be good news. It's in escrow and things are, I assume, moving along without major problems. I believe it's scheduled to close escrow mid- to late- April.


January Apartment Update and HML #30


First off, my hard money loan #30 was paid off a couple weeks ago. This only lasted a couple of months.

On the apartment front, occupancy was at 96% for January and the total revenue hit almost $204,000 - the highest ever. Cash flow was a positive $18,000 for the month. As mentioned last month, there was a fire at the property around Christmas time. The insurance adjuster and an engineer have been out to examine the property but we have not yet received their report. The year is starting off well and with just one month under our belt, our income is already almost $17,000 over budget.

Which brings me to the next point - the possible sale of the property. It's looking good so far. The buyers have completed their inspections and the bankers are now working on going through the process of getting the buyers approved to assume our loan. Once that is done, the sale can progress. At least point, we are estimating a close of escrow around the middle to end of April.(image)

December Apartment Update


The December numbers just came in. Occupancy continued at 94% and revenue stayed about the same as last month. Next income dropped by about $11,000 to $14,000 however, due to an escrow analysis from our lender which discovered we needed to be putting more into our escrow account for insurance. This resulted in about a $6,000 increase in our monthly mortgage payment for the month.

We also found out the property suffered a "fairly significant fire" the first week of January, caused by a dry Christmas tree. Four units were destroyed and there was damage to the entire building, which contains 18 units. Thankfully, there were no injuries. An insurance claim has been filed and management expects full coverage, not only for damages, but also for rent loss until the building can be repaired and re-rented.

The escrow increase is a disappointment. That represents a 25% chunk of our monthly net income. No word on if this is a permanent increase, or the lender needed a lump sum to bring the escrow account up to a certain level and the regular monthly increase will be smaller. But, as the fire shows, insurance is needed.

Rent concessions almost tripled in December over November, but that's understandable, given it is a big holiday month and people likely need some encouragement to move during the holidays. I know I would.

For the entire year of 2013, the property ended up with a positive net income of just over $150,000. That's about $135,000 over budget. It looks like this was the turn-around year for the property.(image)

Delayed November Apartment Update


I've actually had the November financials for the Houston apartment sitting in my inbox for a couple weeks. The December ones should be arriving any day now, so I've been putting off writing anything so I could  write a single post for the combined two months. Well, the December info isn't here yet, so I figured I better get something out for November before it falls too far in the past.

Occupancy remained at 94%. The property had a positive cash flow of a tad over $25,000 for the month. This is actually the highest monthly cash flow of the year, beating out August's number by just over $100. Rent concessions dropped. Our overall income for the month increased by about $2,000 over October.

On the other hand, expenses also increased over October - but only by about $1,000. We saw increases in marketing, apartment turnover, and repairs. These were partially offset by a large decrease in administration expenses.

Management says the last 10 months of positive cash flow have allowed us to pay off $100,000 of aged accounts receivable over the course of the year. Now our balance sheet shows our accounts receivable greater than our accounts payable, so we look to be finally rid of all those old debts we accrued during the bad years. The property is currently $124,500 over our budgeted net income for the year. That's good news.

No word yet on the potential sale of the property. One of the potential buyers requested a four month or so examination period and we're still in that, so I suppose this is a case of no news is good news. I hope we get an update with December's numbers, but we may not.(image)

HML #30 Started


Things have picked up lately. After a period of low activity, it seems our borrowers are now once again buying properties. My partner has five loan requests to evaluate. Here are the details of the one I invested in.

This is a vacant single family home in Vallejo, California - in the San Francisco Bay area. It's a 1,310 3 bed, 2 bath home with an attached 2 car garage. It was built in 1994 and it sits on a lot just over 6,000 square feet. The front exterior of the property looks nice, although the back needs some work. Some landscaping needs to be done and, in fact, there were landscapers there working when my partner went to look at the property.

The borrower is our biggest borrower and he purchased the property for $141,000 at a foreclosure auction.The opening bid was $132,000, so others wanted this one as well. estimates the property to be worth $180,000. Based on MLS sales of comps, my partner estimates it to be worth $225,000 as-is and $265,000 after repairs. There are five good comps in the MLS. Four of them were short sales. Three of the five sold for more than the listing price. One of the comps is from May and the rest of 3 months old or less. All sold for higher than their "Zestimate." (Really, the only usefulness of their estimate, IMHO, is to get a ballpark figure of value. I'd never use it as a basis for REI analysis.)

My partner gives the neighborhood a not so good rating, but that normal for this borrower. He specializes in those areas. In terms of the loan, we are lending $105,000, giving us a 74.5% loan to value ratio using the auction buy price. Using our as-is estimate of $225,000, it's a LTV of 46.7%. The biggest drawback to this loan is that it is in an area we don't normally lend in and that our borrower doesn't usually buy in, meaning we could be off on our value estimates.

Here are some pictures.


Funny Article


I was reading some news stories that mentioned one of the REIT stocks I own, and came across this piece on The Motley Fool. Now, given the source, it's somewhat obvious that it will be biased towards stock ownership over rental property, but I thought it did provide a good example of what the typical first time landlord thinks - not too concerned with cashflow, relying on appreciating property values, no thought or budgeting towards maintenance costs, etc.(image)

Houston Apartment October 2013 Update


The numbers for October are in and things are still looking good. Occupancy remained at 94%. Rental income reached a high for the year, coming in $1,000 over September, which was the previous high for the year. Overall income dipped slightly due to some higher administrative expenses that consisted of once time charges. Year to date, the net income for the property is $100,000 over budget. (!)

As I mentioned before, the property is up for sale. I had a talk with the managing partner (of our investment group, not the property) a while ago and he mentioned that the property does need a little bit of work to bring it back up to being a highly desirable location for tenants (which isn't to say it's a pit right now). We did some renovation when we bought the property, but with the multi-year economic downturn, management didn't have the funds to keep adding amenities. As a result, at least one of the potential buyers we are talking to has indicated they plan to put about $1 million into improvements if they end up as the owners. That's good news for the tenants. Of course, now that the property is performing well, we have the option to not sell the property and invest in making improvements ourselves. However, that would require raising additional capital from the owners (us) and our managing partner told me he spoke with the largest shareholders in the property and they did not want to invest any more money. So the property is up for sale. I can't really blame them. I also miss getting the quarterly distribution checks and can understand wanting to get back into something that produces income on a regular basis.(image)

HML #29 Started


My partner found another deal to loan on and my funds from HML #25 and #26 are being used to help fund this one.This property is a nicer one than I normally lend on, although after looking at the photos below, you may think otherwise. The biggest difference is this property is in a fairly nice location and is surrounded by homes in the $1 million and higher range in the city of Orinda, California. Our borrower also is buying this house through a Realtor, rather than at an auction, where most of the properties we lend on normally are purchased. The buyer is also paying an assignment fee, meaning she found this property with the help of a bird dog.The property is a single family home (2/1) with an attached two car garage. It was built in 1951 and is about 1400 square feet. Here are some pictures:The interior looks like it still has the original fixtures, tile, etc. It will need extensive remodeling to bring it up to the standard of the neighboring houses. (Those were also built in the 1950's, but interior photos of comps on the MLS show completely re-done and very modern looking interiors.)  Externally, there are several issues - termite tubes have been found in the crawlspace under the house, there are some cracks seen in the foundation, and there are some drainage issues with the slope of the landscaping. The buyer had a professional property inspection performed, which I have a copy of. Besides the previously mentioned issues, an electrician will likely need to be brought in to re-wire pretty much the whole house. There are no GFCI circuits (they didn't exist when the house was built), the breaker box is a 50 amp circuit and not the standard 100 amp used today, and there were several places where the ground circuit was either non-existent or poorly wired. The roof appears to be OK, although it needs to be cleared of some debris. Rain gutters need to be removed or re-hung. There is a porch that is practically falling down that will probably also have to be removed. Based on the inspector's report, I would estimate between $50,000 and $75,000 in repairs are needed. But that's based on Arizona costs. I don't know what they would run in California.The buyer is purchasing the house for $520,000 plus a bird dog fee. We estimate the current as-is value to be $600,000. Our loan will be for $460,000. Based on comps, we estimate the after repaired value to be at least $825,000. Given the good neighborhood (three comps describe the neighborhood as "coveted", "premier", and "desirable" - all written by different agents at different agencies) and the large amount of equity, my partner rates this as one of the top 10 safest deals he has done, out of close to 200 total. The borrower is our second largest borrower and the loan will be personally guaranteed. She has always paid promptly in the past and has been rehabbing property for at least 5 years (although we've only worked with her for 2 years). The drawbacks: this is the smallest property of the comps we looked at, so the comps may not be truly representative of the property's value. However, they are all we have to go on. The other big drawback, of course, is the condition of the property. It needs a lot of work. If we have to take this one back from the borrower, we will have some serious work to do if we want to fix and sell.[...]

Houston Apartment Up For Sale


I received word this weekend that the Houston apartment complex is up for sale. In fact, we already have two offers for it. Unfortunately, I'm not allowed to discuss any details at this time, but after any sale completes, I'll talk about them. The property was just appraised at between $13.2 million and $14.5 million. We bought it for around $12 million back in 2008.


Apartment September Numbers And HML #28 Pay Off Delay


September saw a continuation of the good performance of the Houston apartment complex. Rental income (which excludes utility chargeback amounts) reached its highest level to date - $170,000. Total income was just $1,000 lower than last month at $198,000. Net income (cash flow) for the month was $19,000, a bit lower than last month's record setting $25,000. I don't really have anything else to report on this other than rent concessions dropped by $1,500 and bad debit write-offs dropped by $5,000. Both of these are good things.

I reported last time that HML #28 was paid off. I was a bit premature on that one. It was supposed to be paid off on Oct. 18, but escrow did not close then. In fact, escrow still hasn't closed and we are now looking at this Friday to be the new closing date. No word on the reason for the delay, but given the unusual demands by the title company (like requiring a signature from me, a mortgage holder), I would not be surprised if they were the reason for the delay.

Update: Turns out, the delay was because the buyer had a scheduled vacation and was out of town. Escrow is closing today, although not without some additional drama. The title company was saying they would not release the funds to my partner and needed wiring instructions from me so they could wire the funds directly to my account. I was off getting that info when I got another call from my partner saying the title company changed their mind and was ok with simply cutting a check to me and letting my partner mail it to me. So that's what we are going to do.(image)

HML #28 Paid Off And Looking Towards 2014


HML #28 was paid off on Friday. This loan was started just a few months ago in August and, at the time, we knew it was going to be a short loan. Out biggest borrower is not buying much these days because he feels people are paying too much at the foreclosure auctions. As a result, my partner has $1.2 million sitting around waiting to be re-invested and where I normally have four loans outstanding at any one time, I currently only have one.This payoff was also strange in that this was the first time in the 7 or 8 years I have been doing this that I was required to go to the title agency and sign documents. As a mortgage holder that is being paid off, there isn't anything I normally have to sign and for those few things that do require a signature, my partner and I have a loan servicing agreement that gives him permission to act on my behalf. However, this particular title company was very picky and didn't want to accept that document, so I had to rush around a bit last week to locate a local branch of the title company, sign some documents and have them overnighted to the closing title company in California.I've been thinking about the Houston apartment lately. The property is performing nicely now and I think management will look at putting the property up for sale near the end of the year or beginning of next year. Investors were guaranteed at least a 9% annualized return and the last time we received a profit distribution was October of 2009, so a sale would give us 4 years of accrued interest plus our share of whatever profit we make from the sale over our purchase price.I'm trying to plan how to reinvest my money once this investment is over. (I know, I'm counting my chickens before they hatch.) I'm not sure I want to reinvest in an apartment complex right now. I do like the idea of apartment investing and plan to do it again in the future, but I'm not sure it's the next investment I want to make. For one, it's become clear that the performance of apartments is closely tied to the economic situation of the area. That's obvious and holds true for any real estate investment, but what this investment has shown me is that, because apartments have many tenants, a widespread economic downturn can result in the loss of many tenants. That can cause a cascade effect where property income drops and operating expenses don't get paid and investors can't get scheduled distributions.Which brings me to my second point: apartments really are a business. They have operating expenses that have to be paid and maintenance and other activities to manage. As an investor, I didn't really have to deal with the day to day administration of such things because we have a management team that handles that. However, as was the case with this property, if things go downhill for a while, investors may be asked to contribute more money to help keep the business afloat. This is in contrast to investing money in a mortgage, where someone just sends you a check every month and a call for more money would be very rare. True, you may have to foreclose and then the mortgage investment can become like a business in that you'll have expenses like fix up and repair costs to sell the property. But on the whole, I think mortgage investing is a lot more hands-off than apartment investing. It also seems the cash flow is more stable, although that may just be due to the quality of the borrowers my partner deals with.Overall, I think apartments tend to be more of an investment for those looking to get capital gains rather than monthly cashflow. I'm reaso[...]

August 2013 Apartment Numbers


The results for August for the Houston apartment complex have just come in from the management company and things continue to go well. Occupancy stayed at 94%, the same as July, but total revenue increased to $199,600. Net operating income hit almost $94,000, which was almost $4,000 higher than July. Cash flow for August also increased just a bit over $25,000, also an increase over July. This is the highest monthly cash flow number this year.

Expenses were normal with the exception of a one time $4,000 expense for tree trimming that was required by our lender. Our losses due to bad debt, which had ballooned to over $22,000 last month, dropped back down to just under $10,000, which is still higher than average, but at least it's moving in the right direction. Rent concessions almost doubled from last month. Since occupancy stayed the same, it looks like my predictions of a stronger rental market last month might have been a bit off.

Nevertheless, the property is performing nicely now and our net income figure is about $14,000 higher than budgeted for the year. Management hasn't made any mention of it yet, but I think the property is beginning to look like it might be in shape to be put on the market towards the end of the year.(image)

Two Loans Closed


My hard money loans numbers 25 and 26 have been paid off. Both of these loans went the full 1 year term. The borrower has paid off the loans, but I'm not sure if it was from selling the properties or from refinancing them to convention mortgages.

Things seem to be slowing down. My partner manages about $6 million in hard money loans and he currently has close to $1 million sitting around waiting to be invested. Our biggest borrower is not borrowing as much as he used to. He thinks people are paying too much for foreclosures these days. Because he specializes in bad neighborhoods, he wants to make sure he doesn't overpay, so he's becoming more selective about the properties he buys. Also, the inventory of foreclosures is starting to shrink a bit.


July 2013 Apartment Update


The numbers for July are in and things continue to improve. Occupancy is at 94%, a 2% drop over June, but total income for the month rose to the highest level of the year, just shy of $197,000. Expenses rose by about $2,000, but the increased income more than made up for it. Total Net Operating Income for the month was just under $90,000 and Net Income (i.e. cashflow) was about $24,000 - both of which were the highest for the year. The cashflow amount was up about $4,000 over last month.

Management is touting the trend of increasing profitability, of course. Our Net Operating Income is the highest it's been since 2009. But looking at the figures, I'm a bit skeptical as to if the improvement will continue or even stabilize. Compared to last month's numbers, I notice a couple of things:
  1. The Bad Debt loss doubled from $11,000 to $22,000.
  2. Rent concessions decreased from $8,000 to $6,000.
  3. Other Income increased from $27,000 to $40,000.
  4. Apartment Turnover costs rose from $3,000 to $4,000.
  5. Property taxes increased by $2,000.
Others figures stayed relatively the same. What I'm curious about is item 3 above - what exactly caused the increase in Other Income? Digging in deeper, I see the biggest change in Other Income over June is that in July we received $9,000 in lease buyout payments versus none in June. We saw increases in other categories as well (including a $3,000 increase in utility income), but lease buyouts was the biggest increase by far. Obviously, this is not likely to be a recurring income stream.

If we look at the numbers, we might be able to read between the lines and get an idea of what is going on at the property. Rent concessions decreased. That points to a stronger rental environment. Bad debt, apartment turnover costs, and income from lease buyouts rose. Those items points to non-paying tenants moving out, either on their own or due to management becoming more diligent in enforcing leases. The occupancy dipped slightly, so that also supports this outlook. I would guess management is seeing more desirable potential tenants becoming available as the rental market strengthens and they are stepping up their efforts to replace unprofitable tenants with profitable ones.

At least, that's my take on it.(image)

Hard Money Loan #28 Started


The funds from my last loan that closed have been reinvested. This one is a single family home in San Pablo, CA. It's not in the best neighborhood, but the house itself isn't too bad.

The house was bought at auction for $151,000. Our loan is for $94,500, giving us a 62% loan to value ratio. The buyer plans to put $20,000 in remodel work into the property. We estimate the after repair value to be $190,000.

The property is a 1,050 square foot single family home, 4 bedroom, 2 bath. It was built in 1954 and has a single car garage. It sits on a 5,800 square foot lot. Behind the house is a raised train track and beyond that is the San Pablo Bay. Comps sold for between $160,000 and $170,000 within the past year. The $160,000 comp sold in one day and the $170,000 one sold in less than 1 month. There was only one other home recently for sale and it also sold very quickly. As a result, our borrower is going to try to get top dollar and will list it for $225,000.

The pros of this deal are:
  1. It's a short duration. The rehab is mostly done.
  2. There were multiple bids at auction for this property, meaing other investors thought it was a good deal.
  3. The area is a seller's market right now.
  4. The LTV is 62% - much better than our normal 75%.
The cons:
  1. Elevated train track behind the house. Could be very loud, but the borrower says inside it isn't bad.
  2. Not the best neighborhood.

This loan is going to be a very short duration. The borrower did not ask for a loan until about 1.5 months after he purchased the property. (He needs funds now to move on to another property.) The rehab work has now been completed and the property should be listed in about 7 days. The borrower put in a new water heater, carpet, and garage door, along with other miscellaneous items.

The borrower works with our biggest borrower and has had about 7 loans with my partner in the past. He's paid all of them on time.(image)

June 2013 Apartment Results


Things continue to look good at the apartment complex in Houston. Occupancy climbed 1 percent to 96%. Total rent collected was almost $165,000 - the highest total since 2009. Total income stayed around $192,000, the amount it's been hovering around since April. Expenses were normal and there were no large, unexpected expenses during the month. The best part is that the net operating income was almost $87,000 for the month and the highest figure year to date. Total cash flow was $19,000 - also a highest year to date figure.

Digging into the details of the financials, I can see rent concessions dropped by $6,000 over May, although write offs of bad debt increased by a similar amount, so that was a wash. Administration expenses dropped by $2,000 and utilities expenses dropped by $3,000. Everything else stayed pretty much the same as in May.

Compared to the budgeted numbers, we are looking good. Our income numbers for the year are $11,000 over budget, expenses are $36,000 under budget, resulting in a net $25,000 income over budget for the year.

Things are looking good and I'm becoming more hopeful that we will be able to sell the property at a significant profit towards the end of this year or beginning of next year.(image)