New Loan Made, Another Loan Closing

First, the quick news: Hard Money Loan #23 was paid off a couple days ago. Those funds are now looking for a new home.

The other bit of news is that my funds from HML #19 have been reinvested. The new property is in a not so great part of town. If the borrower was not someone we have dealt with dozens of times in the past and whose knowledge of the area I respect, I would probably not have made this loan.

The property is a single family home in Oakland. County records list it as a 900 square foot, 1 bedroom, 1 bath unit, however, the property has two separate electricity and gas meters and a detached garage with what appears to be some added living space. Tax records do not indicate a garage or the additional living space. (While this means this could be a duplex, it also means the additions likely were done without obtaining the proper permits and inspections.) The back door has a doorbell and may indicate an entrance to a second unit. Obviously, we were not able to see the interior of the property and the MLS listing did not have interior photos. The roof and foundation appear to be in good shape, but there is some dry rot on the walls and around the windows, as well as peeling paint. Title records indicate the last owner received the property as a gift and  obtained a cash-out mortgage for $270,000 in 2005.

The problem then, is how to value this property. We've got discrepancies between what the tax records show and what the property appears to actually have. It's in a bad part of town and there are next to no comps that closely match this property. So, in addition to coming up with an estimate on his own, my partner hired another appraiser that we have worked with before to give his opinion.

Being that the neighborhood isn't that great, the location of the comps becomes fairly important. They also treated this as a 2 bedroom property for finding comps. Between the two of them, we ended up with 11 comps and you can see how widely the sales prices differ:

• #1 - $47K - REO, rehab, all cash sale. MLS listing noted some vandalism and stripped pipes.
• #2 - $30K - REO, sold as-is
• #3 - $55K - REO short sale, listed as a "fixer upper"
• #4 - $63K - REO - our hired guy said both the curb appeal and location of this property are worse than ours
• #5 - $65K - REO - another property with rooms not listed in tax records
• #6 - $86K - REO - rehab
• #7 - $130K - REO, detached garage
• #8 - $45K - REO
• #9 - $58K - REO with fire damage
• #10 - $136K - REO
• #11 - $160K - Regular sale, location is worse than our property

All the comps are 2 bedroom and have sold since April (except for one or two sold in January).

Our hired guy figures the property is worth $75,000 as-is and $110,000 after it is repaired. Our borrower bought the property at auction for $88,000. Our loan is for $63,000. Using the purchase price, our LTV is 72%.  Some other positives for this deal: Our borrower is personally guaranteeing the loan, he knows the area really well, and he has never defaulted or even had a late payment with us, the market is better than it was 6 months ago, if this really is 2 units, they would rent for $1,500 - $2,000 a month combined, and my partner's wife is also a lender on this one, so he has a vested interest in the safety of the loan. Some cons: no one else bid on this at the auction, property appears to be in conflict with tax records and extra living space might not have been built with permits, condition of the interior is unknown, bad neighborhood, and our borrower is personally guaranteeing several loans with us.

Sorry, I didn't get any pictures of the property on this one.


This property will be labelled Hard Money #25.

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July Update

The July figures from the apartment complex look good. Overall, they've dropped a bit from June, but not significantly. June was the sixth consecutive month of increasing total income, so I expected that to end sooner or later. Total income for July dropped by $4,000 and occupancy dipped to 90%. Offsetting the lower income were lower payroll and utility payments, so we had a net gain in monthly profit. However, the property overall was above break-even, which is a first for this year and, if I recall, the first for maybe 1 or 2 years. Good news indeed.

My four hard money loans continue to pay on time. Several other loans my partner has have closed recently and I expect some, if not all, of my loans to be closed soon. Three of them aren't approaching their 1 year due date, but based on past experience with the borrower, the properties are probably up for sale or in escrow right now. One of my loans has actually gone the full 1 year term - something that rarely happens. This note was due this month. Haven't heard any word on a payoff yet though.

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Hard Money Loan #23 Started

I started a new hard money loan this week, bringing my current outstanding loan count to 4.

This one is on a single family home in San Pablo. It is currently occupied. It's a 2 bedroom, 1 bath, 856 square foot home built in 1950. The roof and foundation look to be in good shape and, other than the garage, the paint is in good shape. We were unable to see the inside of the home, but pictures of the interior on MLS show it seems to be in good shape. The landscaping is in good shape too. It appears to have newer windows and the kitchen has been redone with granite and stainless steel appliances.

The property was listed as a short sale on the MLS at $175,000. There is another property down the street, similar in size and condition, that is also listed as a short sale for $175,000. It sold in seven days, but we don't know what the actual contract price was since it was a short sale. The neighborhood is just OK. My partner's helper rates it a "C". The property is near a large regional park, so there aren't many nearby houses for comps. The original owner bought the property in 2004 for $378,000. There was competition at the auction for this property, so other investors wanted it. Our borrower got it for $129,000. Our loan is for $105,000. We conservatively are valuing it at $160,000. That makes our LTV 65.6%. My investment in this property is smaller than normal, since it's being done with funds from my daughter's UTMA account, as I mentioned a couple weeks ago.

My other loans continue to pay on time. Ho hum.

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