{"id":161,"date":"2010-09-09T12:44:32","date_gmt":"2010-09-09T19:44:32","guid":{"rendered":"http:\/\/privatemoneysource.com\/broker-blog\/?p=161"},"modified":"2010-09-09T12:44:32","modified_gmt":"2010-09-09T19:44:32","slug":"when-life-gives-you-lemons","status":"publish","type":"post","link":"https:\/\/privatemoneysource.com\/broker-blog\/?p=161","title":{"rendered":"When life gives you lemons \u2026"},"content":{"rendered":"

Clay Sparkman<\/em>
\nI recently posted this article on my investor blog, The Private Money Investor<\/a>. <\/em> Even though the article is targeted toward investors who put their money into private money loans, <\/em>I think it is appropriate to post it here.\u00a0 After all … just look around you … this is where the game is.<\/em>
\nI have always believed\u2014and history seems to bear this out\u2014that when the status quo becomes problematic, new opportunities present themselves.\u00a0 \u00a0Certainly the real estate economy of the past three years has proved problematic, and so as private money investors we are called upon to seek out those borrowers\/investors who have encountered and successfully engaged those new hidden opportunities to create wealth in difficult times.
\nI would like to present here, by way of example, one real estate investor in particular who has done precisely that.\u00a0 \u00a0Mr. X saw opportunity in a Las Vegas real estate market turned upside down.\u00a0 \u00a0He assembled a crack team and began buying REO properties at heavily discounted prices from banks.\u00a0 \u00a0He used private money, along with his own funds, to buy, rehab, and either quick-flip or hold (depending on the particular circumstances) single family residences and multi-unit properties in the city.
\nHe came to us to help fund his projects, and we have been thrilled to see him perform impeccably on loan after loan, grow his wealth position, and persistently decrease his leverage position (at a time when many real estate investors are doing just the opposite).
\nOur private money lenders are coming to us and asking for the chance to do more loans for Mr. X.\u00a0 \u00a0We just finished closing another 4-plex rehab loan for him and are now in the process of placing a very attractive 10-plex acquisition and rehab opportunity.\u00a0 \u00a0By way of illustration, I have provided the prospectus below.<\/p>\n

Kristopher Gillmore<\/p>\n

Fairfield Financial Services, Inc<\/strong><\/p>\n

3327 SE 50th St, Portland, OR 9706<\/p>\n

Phone (503) 319-7294 \/ Fax (503) 419-4219 \/ E-mail: gillmore@privatemoneysource.com<\/a><\/p>\n

REAL ESTATE PROSPECTUS<\/span><\/strong><\/p>\n

SECURED LOAN<\/span><\/strong>
\nPurchase and Rehab of 10-plex in Las Vegas, Nevada
\nLoan Details<\/span><\/strong><\/p>\n

    \n
  1. Loan Amount: $210,000<\/li>\n
  2. Term: 2 yr<\/li>\n
  3. Interest Rate: 13%<\/li>\n
  4. Monthly Payments: $2,275.33 Interest Only<\/li>\n
  5. Security:\u00a0 Deed of Trust in 1st Position security interest in real property in Las Vegas, NV 89102<\/li>\n
  6. Value by Borrower Estimate \/ Comps is $350,000<\/li>\n
  7. LTV by Borrower Estimate \/ Comps is 60%<\/li>\n<\/ol>\n

    Loan Overview<\/span><\/strong>
    \nA loan for the purchase and rehab of this property has been requested by Mr. X\u2019s company, xxx, LLC.\u00a0 \u00a0Mr. X is requesting $98,200 for the rehab of this property, and will be making a down payment of approximately $16,000.\u00a0 \u00a0Mr. X will personally guarantee this loan.
    \nMr. X is experienced flipping homes and multi-family homes in Las Vegas, and has rehabbed well over 200 properties in this area.\u00a0 \u00a0He currently holds 65 properties in his inventory.\u00a0 38 of these homes are free and clear and all but 2 of his properties are rented and producing income.\u00a0 Mr. X reports that these properties are for sale or pending renters.
    \nMr. X has successfully completed four loans with Fairfield over this past two years.\u00a0 In each of these loans the construction was completed and the properties were listed in under a month.\u00a0 Both houses were sold and the loans paid in full well before the loans matured and Mr. X has never been late with a payment. \u00a0In addition, Mr. X currently has five active loans through Fairfield.\u00a0 These five loans are on 4-plexes that he is holding as rentals, and like the first four loans.\u00a0 Each of these rehabs was completed and rented in approximately one month.\u00a0 Each property has a positive cash flow and Mr. X has never been late with a payment.\u00a0 To exit this loan, Mr. X will seek conventional financing once renters are in place.\u00a0 He anticipates that it will take around a year to get this financing in place.
    \nProperty<\/span><\/strong>
    \nThe subject property is 5,500 SF and has 10 units.\u00a0 There are eight 1 bedroom and 1 bath units, and two 2 bedroom, 2 bath units.\u00a0 The 10-plex was built in 1956 and sits on a .15 acre lot.
    \nBased on other rental properties that Mr. X owns in this area, he anticipates that property will rent for $4,300 \/ month total ($400 \/ 1-bed and $550 \/ 2-bed).\u00a0 Mr. X aggressively markets his rentals which are all newly renovated and priced lower than his competitors.
    \nThe building is structurally sound, but is in need of cosmetic repairs.\u00a0 Mr. X has agreed to make all of the repairs to this property out of pocked ($98,200), and will submit one final draw for reimbursement once this property has been completed.
    \nThis property is in a prime location, within walking distance from the Las Vegas strip.\u00a0 It is located approximately \u00bd mile from the Stratosphere hotel and casino, in close proximity to some high end developments like Allure Towers, Soho Lofts, and Newport Lofts.
    \nValuation<\/span><\/strong>
    \nComps by Borrower<\/span>
    \nTo determine the completion Value, Mr. X\u2019s partner and realtor, Mr. Y, has provided some recent comps for multi-unit properties.\u00a0 Based on the price per unit of these comps, location, and expected rents, Mr. X estimates a conservative value of at least $350,000 for this property.
    \nIn July 2010, a property inspection was performed for a 4-plex in a similar neighborhood (829 Held Road).\u00a0 It was suggested by our inspector that a conservative value for this property would be $180,000.\u00a0 Because these are both multi-unit income properties, the approach used to calculate this value should be similar.\u00a0 Based on the inspectors estimate of value for this 4-plex, Mr. X\u2019s estimate of $350,000 for a 10-plex seems reasonable.
    \nIncome<\/span><\/strong>
    \nWe were provided with a signed 1003 for Mr. X, which states a monthly income of $30,000.\u00a0 In addition, he states a net rental income (not including taxes and insurance) of $72,180, and a net worth of $7,258,000.\u00a0\u00a0 A copy is provided here for your review
    \nCredit<\/span><\/strong>
    \nMr. X has a mid credit score 575.\u00a0 His credit score has dropped substantially due to late payments on a Mercedes for which his ex-wife is responsible.\u00a0 Mr. X said that his name should not be on that anymore and he will look into it.
    \nMarket Analysis<\/span><\/strong>
    \nThere is ample information available for residential market conditions.\u00a0 By utilizing sites like zillow.com and altosresearch.com, we can see that the residential market has been in decline for the past 2 years.\u00a0 Altos research.com provides graphs of the average price, price\/SF, days on market, and the number of homes on the market.\u00a0 These graphs are provided for your review.
    \nMost notably, the graph showing the number of homes on the market (and recent reports of a 2nd<\/sup> wave of foreclosures) suggests that increased foreclosures continue to force people out of their homes.\u00a0 The number of homes on the market has increased by approximately 10% over the past 6 months.
    \nMr. X states that this downturn in the residential real estate market has been one of the keys to his success.\u00a0 Mr. X stopped flipping houses approximately one year ago, and started buying rentals.\u00a0 In this market he\u2019s able to purchase these properties below market value and rehab them quickly, so that they cash flow with hard money rates with minimal vacancy.\u00a0 The fact that these rentals are newly renovated and competitively priced in a market where more people are renting, has allowed Mr. X to make a lot of money over this past year.
    \nNow that\u2019s some kind of lemonade!<\/p>\n

    — Clay (clay@privatemoneysource.com, 503-476-2909)<\/p>\n

    Clay is Vice President of Fairfield Financial, a primary source for private money since 1964.\u00a0 Fairfield is currently targeting loans in OR, WA, AK, CA, CO, ID, FL, GA, ID, MT, NV, NY, OK and TX.\u00a0 To submit a loan to Fairfield for consideration: <\/em>http:\/\/www.privatemoneysource.com\/loanproposal.php<\/a><\/p>\n","protected":false},"excerpt":{"rendered":"

    Clay Sparkman I recently posted this article on my investor blog, The Private Money Investor. Even though the article is targeted toward investors who put their money into private money loans, I think it is appropriate to post it here.\u00a0 After all … just look around you … this is where the game is. I […]<\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_s2mail":""},"categories":[12,14,19],"tags":[38,39,42,43,45,46,48,51,54,55,57,58,59,60,61,63],"_links":{"self":[{"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=\/wp\/v2\/posts\/161"}],"collection":[{"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=\/wp\/v2\/users\/1"}],"replies":[{"embeddable":true,"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcomments&post=161"}],"version-history":[{"count":0,"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=\/wp\/v2\/posts\/161\/revisions"}],"wp:attachment":[{"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=%2Fwp%2Fv2%2Fmedia&parent=161"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=%2Fwp%2Fv2%2Fcategories&post=161"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/privatemoneysource.com\/broker-blog\/index.php?rest_route=%2Fwp%2Fv2%2Ftags&post=161"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}