Completed La Mesa Flip

Hello All,

Here is the completed flip that was purchased in November

You can see the link to the original post here;

http://pfllc.blogspot.com/2011/10/new-flip-in-la-mesa.html

As you can see the property looks vastly different now then it did before. The original plan was to build a bedroom and bathroom onto the property in order to really increase the value and when the borrower was in the process of getting permits, he decided that it was more trouble than it was worth. Unfortunately, for the borrower, there was some wasted time while he was attempting to get permits for this property and was paying interest during that time.

http://sequ.com

New Flip in La Mesa

Here is a new project that is about to receive funding. The rehabber is buying this house as a short sale. He is utilizing leverage from me in the form of a hard money loan.

This property is currently a 2 bedroom 1 bath house. The rehabber is planning to add a master suit and bedroom to this house. Making it about 1,300 square feet when it's done.

The purchase price is about $175,000 and I am doing thew hard money loan at about 80% of the purchase price or $140,000. The rehab is should cost approximately $50,000 and will take about 4 months. I estimate that this property should sell for about $330,000 when it's done.

There is one thing that I really like about this property that does not show on paper but I'm sure will show on the MLS when the property goes for sale. This particular property is zoned for 3 units. I like these types of value adds because it give the perspective buyer an opportunity to make money on the back end. When someone buys this house, they will know that in the future they will be bale to do more with this property. These days no one know what is going on with their retirement plans or pensions, properties like this give the buyer an alternate source of future income.

Take a look at these picture of the before;

I Survived Real Estate 2011 - Appraisal Issues

Last Friday I had the pleasure of attending the "I Survived Real Estate 2011" meeting that was organised by Bruce Norris.

First of all, I have to say that Bruce Noris and his team really do a great job of putting together information and asking the questions that everyone has on their mind. Bruce Norris has a hard money company that is in Irvine that does a lot of the loans that I do, they also have a loan program that they extended to the public where they give loans for 8 years at a lower interest rate with higher points (kind of the opposite of what I do). Even so, at any event that I go to where Bruce speaks, he never pushes his product and I must really commend him for that.

The reason for this blog post is to address a certain topic that was barely touched on by Shaun O'Toole from ForeclosureRadar.com (great site for anyone that is interested in learning about trends of foreclosures or looking to buy properties at the auctions). At the end of the whole evening when the panelists were asked about what they would like to see happen in real estate this upcoming year, Shaun stated that the whole appraisal process is completely screwed up and I agree with him. He stated that if you go into a market where there are no comparables for an appraiser to pick out, they pick the closest comps that they can get and a lot of times the values don't make sense. His idea was to comp out properties not by other sales but by the cash flow that they produce. If you can make sure that the property cash flows with the market rent, then you can decipher the value from the rent that the property will produce. I don't necessarily agree with him on the whole idea but if someone is willing to buy a property based on the cash flow at a certain price, there should be some sort of variance that you can have on the appraised value.

I was just affected by this issue on a certain multiple unit property that I was selling. We went through the whole inspection, appraisal and walk through process and the buyer was completely satisfied with the sale. When the appraisal came back, it came back lower than the sales price and it put a hitch in our sale. Now this property is superior to any comp that the appraiser had on the appraisal report but because there was a value discrepancy according to some HACK appraiser, the buyer was thinking to back out of the sale.

The buyer was agreeable on the sales price based on the market rents of the units and the cap rate until the appraisal came in. This particular property was completely superior to other multi-unit properties in the area yet the appraiser could not bring the value up. There should be a 2% variance on the allowable discrepancy between the appraised value and the purchase price. When you go to buy a car, the loan company has an allowable 20% variance on the purchase price and that is just on a car. When you are buying a property that is in some cases close to a million dollars, you can't stretch even $10,000. This is ridiculous.

If the case is that the appraiser knows EXACTLY what properties are worth what do you need real estate agents for? Why doesn't someone that is selling a property just get an appraisal and put that appraisal in the classified section? The seller can save 5-6% on commissions that way and there is no second guessing what the property will appraise at.

The other problem is that if a bank orders an appraisal, they are held to the  "Home Valuation Code of Conduct" or HVCC. According to HVCC the bank must use a third party company that will order the appraisal for the bank. The bank can not contact the appraiser directly as well as anyone else that is in the transaction. The company that is responsible for picking the appraiser only have a certain amount of choices to pick from (appraisers that have signed up with them). Most of these companies will not give the same appraiser more business than the others so what they do is switch appraisers that they send requests to so that everyone gets their fair share (kind of like communism). What ends up happening in many cases is they pick appraisers that are not from the area to appraise properties. If you are sticking with the current appraisal system, this presents a problem because it's really easy to overlook the railroad tracks that the appraiser is crossing.

In my business, this is not a big deal because most of it is hard money loans but I feel bad for my clients that are rehabbing properties because they are at the mercy of this royalty that we call appraisers.

Thank you for lending me your ear, or rather your eyes, and entertaining an issue that I'm sure many of you have run into.

I would lime to thank Michael Khunis for lending me some ideas for this post.

Completed Casita

Now I have been using the word "casita" very liberally for this particular property. According to dictionary.com this is the formal definition; 

Casita - A small cude dwelling forming part of a shantytown inhabited by Mexican laborers in the southwestern U.S.

WOW was I incorrect for calling this thing a casita all this time!!!! 

This is a really attractive 570 square foot craftsman style house that is located in Normal Heights. This thing was very unattractive when I went to make the loan. It was in desperate need of repair, especially the foundation. 

Here you can see my previous post for this thing; 

http://pfllc.blogspot.com/2011/04/new-loan-in-normal-heights.html

The property is in escrow now and it looks great. This thing is really charming and will be a great purchase for the next people that plan to live in it. 

Take a look at the after pictures, the rehabers really did a great job fixing this property. 

Completed Flip in Encanto

Hello all,

I have not had the time to make updates to this blog lately but I have come to realize that the San Diego Hard Money Blog has viewers that are anxious for some San Diego hard Money Deals that have funded.

My last post was about a property in Encanto where the purchase price was $155,000 on the acquisition of a 3 bedroom 2 bathroom house. This house is on the market for $250,000 now.

Well here are some pictures of the completed project:

New Flip in Encanto

Here are the before pictures of a new loan that we gave a hard money loan on in Encanto.

The purchase price was $155,000. The flippers have an estimated $40,000 in repair costs for this property. We did a hard money loan for $125,000 on this property. When the property is completed it should be worth about $220,000.  This is a great price point because it's the low end and the low end sells fast.

The comparable rents on a property like this 3 bedroom 2 bath house should be about $1,500 a month in the area. If I need to take this house back, I will be making $1,500 on my investment of $125,000. After taxes and insurance I will be $1,370 positive every month, this is a $13% cash on cash return.

This hard money loan is paying the investor 10%

Take a look at the pictures;

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.

Completed Flip in Lincoln Park

Here is a flip that was done here in San Diego (Lincoln Park)

The borrower purchased the property in the end of march for $140,000. We lent him $100,000 to purchase the house and he put $40,000 down payment and did all of the work for his own money. This loan has funded and I am picking up a check at the title company on Monday.

This filler was able to buy this property, rehab it and sell it for $230,000 in only two months... AMAZING!!

This loan was paying 11% to the investor. What I like about these flip deals is that the investor gets their money back fast. What other investment can you make and annual return of 11% on where you have the ability to pull out after a few months?

Here are some before and after pics;

New Loan in Normal Heights

I have a new property in Normal Heights that needs a loan. 


Purchase Price : $171,000
Loan Amount: $141,000
LTV: 82% of purchase price 
Term: 6 months (this loan will most likely pay off in 3 months)
San Diego - Normal HeightsInterest Only Payments
We are paying the investor 11% interest on this loan.


Normal Heights is a trendy up and coming neighborhood in San Diego. This area used to be on the rough side but it has really become the place to be in the last few years. This property is a single cottage home 2 bedroom / 1 bath. 


The properties, when fixed up, go for around $250,000 - $280,000. The rent on on a unit like this is about $1,350 - $1,450 a month depending on the condition.


If we were to take this property back form the owners (at $141,000) we would have about $1,353 positive cash flow if we were to rent it out. This is an 11.5% return on your money. 


I think this is a great deal that the people buying this property are getting. If I could get this thing into contract at $141,000, it would be a no brainer. 


Alexander (Sasha) Favelukis
Priority First PF, LLC
858-205-2449

More Pictures of the Property in La Mesa

Here are some more pictures of the property in La Mesa. I can't wait to see what these guys do with it.

New loan in La Mesa

Here is a new loan in La Mesa that we are funding. The borrower is a very experienced flipper here in San Diego.

Purchase Price : $310,000
Loan Amount: $217,000
LTV: 70% of purchase price
Term: 6 months (this loan will most likely pay off in 3 months)
La Mesa, CA
Interest Only Payments
We are paying the investor 11% interest on this loan.

This is a very unique property for San Diego because of the fact that it has a 1 bedroom unit attached to the house (with a full kitchen). This really give the next owner a great advantage because they are able to rent this unit out for approximately $1,100. This will help them a lot with payments.

The way that I look at it is if we have to take this house back in foreclosure(most likely won't happen), we could rent the house out for $1,700 and the rental unit for $1,100. This would give a $2,800 income on this property that we would be taking back for $217,000. After calculating $226 for taxes and insurance monthly, you end up with an 14.2% cash on cash return. This is a great investment, I would buy this house for $217,000 in a heartbeat if it was on the market for that.

Alexander (Sasha) Favelukis

Priority First PF, LLC