Property Acquisition in Lakeside

I am very excited today because we are acquiring a new property in Lakeside. The property came to me from one of my flipper clients. I had called him about his opinion on a 2 unit property that I was looking at (it needed a lot of work). When he stopped by he had mentioned that he had a deal for me that was better than the one we were looking at.

This is a 3 unit property that is in Lakeside. The property is 2 buildings and each unit is 1 bedroom 1 bath. The rent on units like this is about $1,000 (in fixed up condition). So I figure that I will calculate conservatively and estimate that I will get $900 per door. The property needs about $30,000 in work in order to get it to high end sale shape.

Some may wonder why I am building the units with granite counter tops and nice appliances but I think that by doing this I will get more high end tenants that respect the property and will take care of it.

The key to this property is that I am in escrow for $156,000!!!!

If this unit gives me $2,700 a month in rent;

$2,700 -Rent
-$162.50 - Taxes
-$270 - Management
 -----------------------
$2,267.5

This gives me a 14.5% return on $186,000 ($156,000+ $30,000)

This will be a great cash flow property for many years to come.

Here are the before pictures, I can't wait to see it when the contractor is done with it.

Flip in Escondido

This is a completed flip that is currently on the market. The property was purchased by the borrower in the middle of February and was flipped in 45 days. The property has now been on the market for 30 days and has a few bites.

Purchase price                 $155,000
Loan Amount                   $110,000
Sales Price                       $250,000
Interest Paid to investor    11%

This property would rent for $1,700 - $1,800 if it would be on the market as a rental. After $115 for taxes, $170 for property management, this property would net $1,415 per month. On the original loan amount of $110,000, this gives you an annual return of over 15%.

Take a look at the before and after pictures;

El Cortez Loan

This one funded about 2 month ago but I am just getting to put it up on the blog now. The borrowers purchased this property in 2010 for $150,000 and put in about $30,000 in work. They then went ahead and rented this unit out for $2,500 a month a s a vacation rental. The borrowers are flippers that were going to try to hold the unit but decided to see what they could get on the market for it. The property is in contract for just under $200,000.

We did a 2 year note for this borrower (although he only kept it for 2 months).  This is a 1st trust deed for $120,000 and it's paying the investor 10% annualized.

What is Hard Money??

I wanted to write this post for all of the people that don't have an extremely secure grasp on what hard money lending is. Fell free to comment if you have any questions.

1. What is the process for Hard Money Loans?
   Hard Money Loans provide Investors access to capital to purchase investment properties. They can fund quickly, typically within 72 hours of receiving the final docs from the Title Company. Hard Money is available for adequately collateralized loans on single-family residential houses and other Real Property including commercial projects.
2. What is the interest rate?
   The interest rate depends upon the Lender. The rate will range from 10% interest only to 15% interest only annual interest rate payable monthly in most cases..
3. What Loan-to-Value are Hard Money Lenders looking for?
   Typically a loan does not exceed 70%- 80% of the purchase price. 
4. How long is the loan for?
   Typically write the notes from 3 months to 12 months depending on the Lender and your needs. Longer the term can lead to increased costs or interest rate.
5. What are the costs?
   All loans will require Title Policy, Insurance, and Appraisal. These services come with fees that can range from a few hundred to a couple of thousand dollars. Most require origination points ranging from 1 to 7 points.
6. Can I get money pay for repairs?
   Yes. Most Lenders require a “Draw Request” form to be filled out to identify the completed repairs to the property, copies of the invoices from the contractors or sub contractors. After work is inspected, draws can be dispersed. Typically work is not paid in advanced.
7. Does my credit matter?
   Maybe. Hard Money Lender do check credit, not necessary for credit scores, but to check for bankruptcies, foreclosures, charge offs and collections. They look for ability to repay. The loan is more collateral based, which means they look really closely at the property.
8. Do I need to put any money down?
   In most cases, Yes. Most lenders want to ensure that you have enough resources to finish the repairs and cover the costs of the loan plus any surprises. Expect to pay all origination/discount points and other costs at or before closing. If you cannot afford to close you typically cannot afford to take out this type of loan.
9. Can interest to be deferred to the end of the loan?
   Sometimes. Most have interest payable monthly. Again, if you cannot afford to close you typically cannot afford to take out this type of loan.
10. How does Hard Money compare to a traditional non-owner occupied investor loan?
    This would be like comparing apples to oranges. Hard Money has a very specific purpose. Typically these loans are for quick turn around or after repair situations. Conventional financing is used for your traditional rentals and long term hold scenarios. As the foreclosure market increase you will find investors to use Hard Money as way to secure the property in a short period of time then refinance into Conventional finance.

Another Completed flip in Lincoln Park

This property was purchased on March 11th 2011 for $165,000. the flipper put $55,000 down payment on the purchase and we financed $110,000. The property is now finished and is in contract for over the asking price of $265,000. The flipper was able to finish the work in 2-3 weeks and had the property staged and on the market.

Another Finished Flip

Here is a flip that was done in 2 months. This property is in the Talmadge area, it is in the very end of a culdesac on the side of a cliff that looks over a valley.

The property was purchased 2 months ago for $360,000 and is now for sale for $549,000. The flippers spent under $50,000 to do the entire flip.