Shaun's Real Estate Adventures

New Loan Started, March Apartment Update

2013-05-06T08:26:00.000-07:00

I've started a new hard money loan on a property in Richmond, CA. This is a 4 bedroom duplex, 2 bedrooms and 1 bath on each side. Each unit is 600 square feet for a total property square footage of 1,200 square feet. Each unit has an attached one car garage. There is at least one tenant in the property (my partner was unable to see the interior of either side). The property was built in 1960 and is on a 3,750 square foot lot. There is a train track nearby and my partner said he could hear the train as it went by, but he thinks it might not be audible from inside the property.

Surprisingly, there are several duplex comps within a 1 mile radius. They sold for between $140,000 (REO sale, slightly smaller property) to $215,000. This property was purchased at auction for $176,000. The opening bid was $117,000, so there was a lot of interest in this property and the price was bid up nicely. Our after repaired value estimate is $220,000 with a current value estimate of $170,000. (Yes, our current value estimate is lower than the purchase price.) Our loan is for $120,000, giving us a 71% loan to value ratio based on the current value. We also estimate the units can rent for $700 a month each, which would be a $1,400 monthly income on a $120,000 investment, should we have to foreclose. Not bad. Our borrower is someone we have worked with a couple times before. He has always paid on time. He works for our biggest borrower and is starting to build his own business of rehabbing foreclosed properties. He is personally guaranteeing the loan. I'll refer to this property as Hard Money #27.

In other news, the March numbers for the apartment complex are in. Rent income increased by $2,000, occupancy rose. Total revenue dropped due to lower utility billbacks, and operating expenses declined. All those factors combined to give an increase in Net Operating Income over last February by almost $3,000. Management expects revenue to continue to increase going forward. For the first three months of this year, the property is cash flow positive, although it is still below the budgeted cash flow amount.

Is The Term "Master Bedroom" Politically Incorrect?

2013-04-17T13:21:00.001-07:00

I came across this article today that says the term master bedroom is being phased out of real estate listings due to its connotations of gender and race inequalities. It's being replaced with terms like owner's suite or owner's bedroom.

Is anyone else out there noticing this?

March Update

2013-03-26T10:42:00.001-07:00

I've been away for a couple weeks on a cruise to Hawaii. Got back and found out my hard money loan #22 finally got paid off. This was 5 months overdue, but since the borrower is one of our biggest clients and he was still making payments on time, we didn't call the note and opted to let him pay it off at his leisure. The property was under contract for sale two or three times, but fell out of escrow each time, I believe because the buyer's lender would not consider this a valid property for a conforming loan. The unit was a triplex and those are normally considered conforming (i.e. non-commercial), but apparently in this post-real estate bubble world, lenders are being more strict in what they define as conforming. Our client ended up keeping the property himself and renting it out. He did a re-fi to pay us off. I'll be adding some money to the principle return from this loan and am looking for a new property to loan on.

My other three hard money loans continue to pay on time.

The financial results for January for the Houston apartment complex came in. The property showed a loss of about $6,500 for the month. This is very disappointing, considering how things appeared to be turning around in December. The silver lining is that the loses in January were due to one-time expenses. We had to pay a vendor almost $4,000 for work done 4 to 5 months ago (we had been delaying paying the vendor until the property's cashflow improved), there was a bed bug infestation that required pest control treatment costing close to $1,000, and several fees related to health and fire permits and loan reserves processing by our lender were paid. We had to replace a hot water boiler that failed, although this $14,000 cost will be reimbursed from our capital improvements escrow account with the lender. If you exclude the boiler and one-time items, cashflow would have been a positive $11,000 for the month.

February's figures should be coming in soon. I'm looking forward to seeing how things went that month.

2012 Year End Apartment Update

2013-02-07T10:33:00.001-07:00

I'm getting a bit behind the times here, but here's the 2012 year end results for the Houston Apartment complex.

December was another good month for the property as things continued to improve. The property had the highest total income amount for the year at just over $186,000. Operating expenses were a bit on the high end, due to some legal bills over the delayed payments we had over the past year. Even with that, they did not reach the highest monthly expense amount of 2012. These two things resulted in the highest monthly net income for the year. Actually, this is really the highest because we had one month where the figure was artificially inflated due to an insurance reimbursement of $30,000. We had a net income of almost $16,000. This was enough to push the property into the black for the whole year to the tune of about $29,000! This is almost $44,000 ahead of the budget that was given to investors during the cash call at the beginning of the year.

Rents are trending upwards at about 2% annually and our rent concession figure rose only marginally from last month. Losses due to bad debt dropped 40% from last month.

With the improvement in the property's finances and assuming we continue to stay on budget for 2013, management believes we can begin to look at selling the property sometime in early 2014. We're looking to sell in the $15 million range (we bought the property at around $12 million). If this can be done, the annualized return on investment to investors would exceed the 9% we were guaranteed.Looking back, it appears management has a fairly good handle on budgeting and any surprises tend to be on the good side. At the start of the year, their budget called for the property to lose money each month through June and finishing the year with a small loss. In reality, the property ended up losing money each month through May and finished the year with a slight gain.

In other news, my four hard money loans continue to pay on time. One property was up for sale, but that fell though and it looks like now the borrower is going to keep this for himself and convert it to a rental. That loan is close to coming due, so it should be paid off soon.

How To Read A Property's Financial Statement - Expenses Section

2013-01-18T09:43:00.000-07:00

Last week, I looked at the Income section of a multi-unit property's financial statement. This week, I'll look at the Expenses section. This part of the statement is actually the most straightforward - it details all the things that management had to spend money on. Again, these are actual values from the Houston apartment complex, this time or February 2012. Here's the summary:

The first column of figures is for the month of February and the second column is the year to date amount (January and February 2012, in this case).

Later in the report, you'll see each section broken down further:

As you can see, the breakdown gives us more detail into how exactly the money in each category is being spent. For example, the Apartment Turnover figure is broken down into costs for general cleaning, re-painting, and carpet cleaning.

This is all fairly straightforward stuff but I enjoy reading it to get a better sense of where money is being spent.

How To Read A Property's Financial Statement - Income Section

2013-01-11T09:19:00.001-07:00

As I was looking over last month's apartment numbers, I realized there was a term on the financial statement that I never really paid much attention to and that some people might not have a good idea of the meaning of. I thought it might be worth explaining how the income portion of a financial statement is filled out and what each term means.

Below is the actual Income portion of the financial statement for the Houston apartment complex for January 2012.

Negative numbers are shown in parenthesis. Let's go over each term.

Gross Rent - This is the amount of rent that would be collected if every unit in the apartment was rented at market rates.

Loss/Gain to Lease - This is the term I figured some people might not know about. Apartments are typically rented out on a 1 year lease. Sometimes longer, sometimes shorter, but typically the tenant signs a contract to pay a certain amount of rent each month for a set number of months. Suppose a tenant signed a lease to pay rent of $500 per month for 1 year and that this is the typical rent for the area at the time of lease signing. Now suppose that after 6 months, due to improvements in the property, a stronger housing market in general, or other factors, the typical rent for a similar apartment in the area rises to $600. At that point, if a new tenant were to rent this apartment, management could charge $600, but since the existing tenant has a contract to pay only $500, the property is losing out on on $100 per month. This is known as "loss to lease" - We've lost $100 in income because the tenant has a 1 year lease preventing us from raising rents. The opposite also applies - if typical rents drop to $400, then we have a "gain to lease" of $100 per month because the tenant is paying $100 more than we could charge a new tenant.

Vacancy - This is pretty obvious. If an apartment is not rented, this is the amount of rent we are losing.

Bad Debt - Income we are owed, but have not been able to collect. For example, if a tenant bounces a check, that rent amount is bad debt (at least until it has been collected).

Rent Concessions - How much we give away in order to get tenants to sign leases. When you see advertisements for apartments that say "First month's rent free!", that is a rent concession and the amount of one month's rent would show up in this category.

Employee Apartments - Managers and / or other building employees sometimes live on site and, in exchange for their services, get either free or discounted rent. This line tracks this amount.

Notice that these amounts, even though they are negative, show up in the Income portion of the financial statement, not the Expenses section. This is because they are not actual amounts we have paid out. They represent reductions in the maximum possible income the property can achieve (as given in the first item, Gross Rents). The Expense portion of the financial statement only contains amount we have actually paid out.

So, as an investor, what you want to see when looking at a property's financial statement is the Gross Rent figure rising and the other figures decreasing (or getting closer to zero). In most cases, the monthly Gross Rent is typically assumed to be static for an entire year, even though market rents may vary month to month. This is just to make budgeting, reporting, and forecasting easier. However, if you are able to look at the financial statements of a property for multiple years, look for this number to be rising each year.

Loss / Gain to Lease is something you want to see approaching zero. A positive number ("gain to lease") is nice in the short term, but that would mean most of your leases are at above-market prices. In turn, that means tenants will probably be moving to a cheaper property when their leases are up and it may be hard to attract new tenants. Here is a chart of the monthly loss to lease numbers for my apartment for this year (through November):

Not too bad. Pretty big losses, but at least it's trending in the right direction.

I hope that gives you some insight into how to read the income portion of a financial statement for a rental property.

November Apartment Report

2013-01-08T09:02:00.002-07:00

Last month, the apartment complex hit a bit of a rough patch. We saw declining occupancy and increased vandalism. I'm pleased to report that things have improved during November. Occupancy increased and rent concessions decreased, so it appears the new property manager is doing well. We hit our highest monthly total revenue number since June and the third highest for the entire year. This was also an $8,000 improvement over October's figure. Our net income figure also rose to $5,700, which is $1,500 higher than last month and the highest figure of the year.

Expenses continue to be stable and we are almost $4,000 over our monthly budgeted net income figure. Unfortunately, our net income for the year overall is still $45,000 under budget, due to the poor performance during the first half of the year. Next month, our $8,000 reduction in our mortgage payment kicks in, so we should see some really good numbers for December.

2012 Year In Review

2012-12-27T09:40:00.000-07:00

As 2012 comes to an end, it's time to look back over what I accomplished in the year with regards to my real estate investments.

I made a total of 5 hard money loans over the course of the year. Four of those are still active. None were delinquent and none defaulted. The investment in the apartment complex gave me a bit of worry for a couple months, but in the end, it appears to have regained its footing. I did not invest any more money when management made the cash call in February. On the other hand, the property has not been generating any income for me either. Things appear to be heading in the right direction now, after hitting a bottom around mid-year. Right now, I'm getting close to $1,000 a month in passive income. This is purely from my hard money loans. If the apartment complex was paying interest as planned, I'd be well over that figure. When I started this blog seven and a half years ago, getting $1,000 a month in passive income was a goal. I didn't get there as soon or in the way I thought I would. It took longer and I ended up going into hard money investing rather than buying and renting properties, but the end result is the same.

Next year, I plan to continue with the hard money lending. I'll probably increase the funds I am using for that slightly, although I have several personal plans that might eat up my funds instead. The plan for the apartment is to continue to let it run and start looking at selling it towards the end of 2013, so any sale probably won't happen until 2014.

November Update

2012-12-03T12:50:00.002-07:00

I've got two updates today. First, the sale of HML #22 has fallen through. Our borrower is looking for a new buyer. I don't have any info as to why the deal didn't happen.

I also received the October update for the Houston apartment complex. Things have gone wee bit south since the last yearly conference call several weeks ago, although some offsetting factors have prevented that from being reflected in the bottom line. Occupancy decreased to 89%. Management says this is due to a combination of factors, including some crime issues that have affected not just our property, but other apartment complexes in the area as well. In addition, we have seen some increased competition from nearby properties in the form of increased rent concessions. There was also some management turnover in the front office and the interim property manager was not up to the task of running the property. Management has addressed these issues by bringing in a more experienced manager from another property to run ours. Perhaps a more seasoned manager would not have allowed the competitor's rent concessions to have had such an impact on our occupancy.

Management says they have also worked with the Houston police department to increase patrols at our property. I'm not sure how effective this will be. If crime is an issue at other properties as well, I imagine the police may be stretched a bit thin trying to increase patrols at all properties. We may end up seeing a return to the use of a private security company for patrols.

Expenses declined due to seasonal decreases in utility usage, as well as the previously mentioned staffing decreases. Overall, we saw a reduction of $10,000 in expenses for October, bring our net operating income to a positive $4,200, the second highest monthly total of the year. Given that this increase is based mostly on one-time events, I would not expect this type of performance to continue.

Or should I? We also received the 2012 real estate tax bill, which features the new property assessment value. As a result of the lower assessment, the amount our lender is collecting for the property tax escrow account is decreasing by about $8,300 per month, beginning in December. That is a huge savings that will go straight to the bottom line.

Hard Money Loan #22 Getting Paid Off

2012-11-21T12:50:00.003-07:00

I received word yesterday that Hard Money Loan #22 is scheduled to be paid off the first week of December. No details on the sale. In fact, it's been 1 year since the loan was made, so it's possible this is a refi and not a sale at all. The property was a triplex with renters in place who wanted to stay, so it's possible the buyer is going to keep it himself.

I'll also take this opportunity to take the interest I received from this loan and add it to the principal for my next one. Manual compounding, if you will..

Yearly Apartment Conference Call

2012-10-19T07:41:00.001-07:00

Yesterday was the annual investor conference call for the Houston apartment complex. Management gave their views on the current performance of the property and their outlook for the future.

In short, it's looking much better. The Houston economy is improving. Unemployment there is dropping. Occupancy is up. The apartment continues to be classified as an institutional grade investment property.

Regarding the cash call the managers asked for last February - They had asked for $250,000 and they received about $140,000. Of that, they used $78,000 to pay down outstanding bills, $20,000 to pay late fees and legal fees resulting from the outstanding bills, and $12,000 to pay property taxes. Management also repaid themselves $20,000 that they had advanced the company. The rest went to operating expenses. Management notes that the mortgage was always paid on time, so we were never in danger of defaulting on the loan.

Since the property was purchased in 2008, we've seen a 36% increase in property taxes and a 44% increase in the water costs from the city. I've written before about how we had the property re-appraised, which resulted in a lower property tax bill back a few years ago. We saved about $100,000 in property taxes between 2010 and 2011. However, during that same period, our loan switched from interest only to interest and principal, so that ate up the tax savings. Management expects the 2013 property taxes to be about $100,000 less than the 2012 amount, but the government hasn't set the final rates yet, so nothing is definite. Insurance costs throughout the Houston area have risen and they expect our insurance to rise by about $50,000 in 2013.

Rents are trending upwards in our market sector. Unfortunately, there is always a lag before our property starts seeing increased rent income simply because the units are rented out on yearly leases, so the rents can't be adjusted until the leases come up for renewal.

The property is on budget through August 2012. In fact, we're within $100 of the budget, which is pretty amazing. The net operating income for the property in 2012 is projected to be $800,000, rising to $990,000 in 2013 and $1.07 million in 2014.

The tentative plan is to look at selling the property in 2014. Assuming a 6.5% CAP rate, the property should be worth about $15 million by that time. (We bought the property for $12.4 million.) This is, of course, based on management's projections of performance and the actual performance may vary. Management will take a closer look towards the end of 2013 and see how things look. These projections are based on not making any distributions to the investors during this period, although if things improve enough, management will look into resuming those payments.

HML #26 Started

2012-10-15T09:50:00.001-07:00

My funds from HML #23 have been rolled into a new loan I am labelling HML #26.

This property is a single family townhouse in Oakland, CA. I think this is the first time I've made a loan on a townhouse. If not, it's certainly one of only a very few. I've got nothing against them. It's just our biggest borrower doesn't buy many of them.

Anyway, this is a 3 bedroom, 2 bath vacant townhouse that is about 1,300 square feet. It has an attached 1 car garage and was built in 2008. It does have a home owners association whose monthly dues are $266. The complex appears to be well maintained and the unit does not appear to need any work on the outside. There is no litigation involving the property filed by the HOA. (Usually when a property with an HOA goes to foreclosure, the HOA has filed some sort of suit against the previous owner for delinquent fees or other issues like property upkeep, yard issues, etc.) The foreclosed-on owner bought the property new in 2008 for $221,000 with only a $8,000 down payment.

The neighborhood was built by the city of Oakland as a housing project, so it's not the best area. There were income and occupancy restrictions when the place was built, but my partner spoke with a neighbor and she wasn't sure if those were still in place. However, we think they are since the agent mentioned this in the expired MLS listing.

There are few comps in the complex. There are only two other properties listed in the MLS for this complex. Both are true comps, in that they are similar is square footage and features. One sold a month ago for $135,000 and the other has been on the market since August with a listing price of $128,000. The income and occupancy limits also place restrictions on how much people can sell the properties for, so the prices in this complex are kept artificially low. If you look for comps on Zillow or Foreclosure Radar, they give values much higher as they don't take this into account.

We're are conservatively figuring this is worth $110,000 as-is or $120,000 after repair. Our borrower bought it at auction for $108,000. There were no other bidders. (I'm guess they were scared off by the fact that this is in a housing project.) Our loan amount is for $73,500, giving us a 68% LTV using the purchase price, a 67% LTV ratio using the as-is price, and a 61% LTV using the after repair price. The borrower is our best customer and is personally guaranteeing the loan. The loan is our standard: 12% interest only payments, 1 year term.

It's going to be interesting to see how long this takes to sell.

Apartment Complex August Update

2012-10-02T07:57:00.000-07:00

The August financials for the Houston apartment complex are in. Occupancy remained at the same level as last month - 90%. Rent concessions increased and management expects occupancy to increase during the last quarter of the year. The unemployment rate in Houston remained at 7.5%, which is where it has been since June. This is slightly lower than the 7.6% it started the year at, but higher than the low of 6.5%, which was hit in April.

The increased rent concession cost was offset slightly by reduced marketing expenses, reduced apartment turnover costs, and lower maintenance costs. Overall, although the property's overall income was about the same as last month, it lost $100 this month, compared to making $900 last month.

Management will be giving the yearly conference call in two weeks to update us on the state of the investment and the projections for the future. Overall, they say they are progressing as they had planned back in February when they made the cash call.

New Loan Made, Another Loan Closing

2012-09-27T14:48:00.000-07:00

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.

HML #19 Closed

2012-09-19T08:14:00.002-07:00

I mentioned last time that one of my loans had lasted the full one year term. That is fairly unusual, not just for hard money loans in general, but particularly for this borrower. He typically fixes and flips properties in 6 months or less. It turns out that he decided to keep this particular property as a rental property. He must be making some good money off of it because he was paying us 12% on our loan, which is rather high. The loan was due at the end of August and he finally refinanced and has paid us off. My partner is looking for another loan to invest in.

July Update

2012-08-31T12:13:00.001-07:00

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.

Millionaire Buys All Foreclosed Properties At County Auction

2012-08-14T06:50:00.002-07:00

Saw this story and had to chuckle. An investor bought all 650 properties up for auction in a Detroit suburb recently. He made an offer to buy all of them as a package deal for $4.8 million - the total of the minimum bids of each one. Other investors are pissed, obviously.

This houses were all foreclosed on because of delinquent property taxes and the minimum bid amount represented the amount of taxes owed. I understand the ire of the other investors, but I do think the tax collector running the auction has a point. He says "I have to collect the taxes and that's what I did." He also points out that, while some of the properties are in good condition, some are not. Had the properties sold individually, those in poor condition likely would not have sold at all.

But the part that made me chuckle was near the beginning of the article: "Bill McMachen told Fox News 2 this is his first foray into the real estate business."

June Apartment Update

2012-07-25T14:57:00.000-07:00

The June numbers for the Houston apartment complex continue to show improvement. The big news is that the property almost broke even last month – it was in the red only by $200. There were no more one-time administrative or maintenance charges. Total income rose almost a thousand dollars over last month while total expenses only rose $500. Looking over the whole year, total income has risen every month and we the current monthly income is now $13,000 over the monthly income number from January. Over the same time, expenses have remained relatively flat, only raising about $1,500 per month over January's number. We didn’t get an occupancy figure, but it looks like it might have dropped slightly – the vacancy loss increased about $3,000 over last month. At the same time, rent concessions dropped by $1,200 – which could play into the lower occupancy figure. All in all, the property is operating very close to the projections management provided a couple months ago.

Rents On The Rise Nationwide

2012-07-06T10:42:00.003-07:00

This article from Reuters says apartment rents are now the highest they have been since 2007 and vacancies are at a 10 year low. This seems to be consistent with what we are seeing at the Houston apartment complex.

New California Foreclosure Law

2012-07-03T08:58:00.000-07:00

Because all my hard money lending is done in California and to people who buy, rehab, and sell foreclosures, this news story caught my eye. The California legislature recently passed a law making it harder to banks to foreclose on property owners. According to Reuters, the bill prohibits banks from "dual-tracking" loans - proceeding with the foreclosure process while also in loan modification negotiations with the owners. The bill also lawsuits against robo-signing. The bill still has to be signed by the governor before it becomes law, but he is expected to sign it.

On the surface, this law sounds good to me. I will freely admit the first I heard about it was from the above linked article and the facts in that article are the extent of my knowledge of it. I do think robo-signing is a big problem. When your actiosn can result in people losing their home and being forced out onto the streets, you need to have someone carefully look over the documents before foreclosing. This just stands to reason. As to the prohibition against dual-tracking, I'm OK with that as well. Yes, it may result in longer times to foreclose on a property. But if a borrower is in talks with a bank to modify their loan, I think they would reasonably conclude that the bank would pause foreclosure proceedings while they are attempting to work out a settlement. Further, without this restriction, the bank has a huge advantage at negotiating - they would be able to drag out the talks until foreclosure was a day away, leaving the borrower with no choice but to either accept the terms the bank offered or lose his or her house.

How will this affect my lending? I expect to see a slowdown in houses for sale at auction for the 6 or so months after this bill becomes law. This will represent the time banks have to wait while they attempt to reach a loan modification deal before proceeding. There is nothing in this law, to my knowledge, that requires the banks change what loan modification terms they must accept, so they will still be reaching the same decision on modifying loans or not, resulting in about the same number of houses going to foreclosure. There will just be a delay lasting the length of those negotiations.

May Apartment Update

2012-06-25T12:59:00.001-07:00

I received the May financials for the Houston apartment complex and I'm pleased to see the numbers continue their improvement. Last month's record income was exceeded by almost $3,000, setting another new record for the highest income since 2010. Also, as mentioned last month, we received a reimbursement from our insurance company for some electrical work that was done last month. Just as the expense depressed our monthly income last month, the refund inflated our monthly income this month. However, if we exclude that amount, the property actually showed a $1,200 profit this month! That's the first time in a long time the property has been in positive territory. Looking at the entire year so far, it's still underwater, but it's possible the property may be emerging from the red sea.

Will this trend continue? I hope so. In what may or may not be an ominous sign, management did not give an indication of how June was shaping up.

Security At Houston Apartment Complex

2012-06-11T13:10:00.001-07:00

Last month, I noticed that the financials for the Houston apartment complex showed the security expense had dropped from between $1,500 and $3,000 a month to zero. My concern was that management eliminated some security measures as a cost cutting move. I was worried that this might result in an increase in vandalism and crime-related expenses. I emailed management about this and, it took a while, but I finally got a response.

It turns out, management was able to cancel the private on-site security patrols they were using because they were able to install security cameras owned by the Houston Police Department at no cost. In the couple of months these have been in operation, there has not been in increase in criminal activity, so it seems to be a positive move.

April Apartment Update

2012-06-05T06:00:00.000-07:00

As hinted at last month, the April numbers for the Houston apartment complex were good. Revenue hit $184,000, which is the highest since 2010. The water conservation program management implemented last year is working well - costs this year are running about 25% below last year's numbers. That's an annual savings of over $24,000.

The property still showed a loss this month, but that was due to an emergency repair that was needed. A high voltage line went out, causing half of the property to lose power. This happened on a weekend, so the emergency repair bill was $30,000. The good news is that the full amount will be recovered from insurance. Unfortunately, the expense shows up in this month's numbers and the insurance reimbursement won't show until next month's numbers, so for this month, we show a large loss. We also had slightly higher legal expenses due to working out a payment schedule with some vendors we owed money to. That expense should also be gone next month. Excluding these two one-time expenses, the property lost about $3,000 in April. This is down from a loss of $9,000 in March, $10,500 in February, and $30,000 in January. Clearly, things are moving in the right direction.

Management projects May's revenue will be slightly higher than April and the property should reach break-even in a couple of months and continue improving from there.

Prosper.Com Class Action Lawsuit

2012-05-29T07:10:00.000-07:00

I received notification today of a class action lawsuit against Prosper.com. It's been several years since I loaned money through them and, in the end, I decided it wasn't for me. I know a couple of my readers also loaned money through them. I just wanted to make people aware that, if you loaned money through Prosper between January 1,2006 and October 14, 2008, you may be a member of the class action suit. Full details can be found at http://www.prosperclassaction.com.