Wednesday, October 22, 2008

Multi #1 Monthly Update

The monthly update for the Houston apartment complex arrived today. Things continue to go well. Occupancy has increased to 96%, making this the fourth straight month of increases. Occupancy has gone up every month since we took over the property and I don't expect it to rise any further.

The damage caused by Hurricane Ike came in at around $25,000, which is less than the insurance deductible, so we will not be making an insurance claim. Payments will be made from regular operating funds.

This report is the first one to include comparisons between budgeted numbers and actual numbers. Nothing shady was going on prior to this. It's just that when initially taking over a property, there are lots of one-time expenses and utility deposits that have to be made, so the numbers for the first couple months do not accurately reflect the normal day-to-day operational costs. Even so, there are still some numbers that are out of whack this month due to some errors. The local water company had our billing start date 22 days later than it should have been, so we had almost an additional full month of water and sewer charges. There was also a procedural issue with the payment of leasing commissions going back to when we took over the property, so this month also saw four months worth of commissions paid out, increasing the payroll number. Even with these charges, the property cashflowed a positive $14,000 in September. Adjusting for the errors, the cashflow was almost $22,000.

As for the budget vs. actual comparison of monthly numbers, things look pretty good. Gross rent was right on target, We are under budget in four areas: Loss / Gain to Lease ($383 under), Vacancy ($784 under), Bad Debit ($1,318 under), and Employee Apartments ($200 under). We were over budget on Rent Concessions ($4,867 over), and the previously mentioned utility and payroll areas. Overall, the property was $1,508 over budget for the month of September, meaning it turned a $1,508 smaller profit than budgeted. Rent concessions, as mentioned last month, were high, but they were cut back during the month and the decrease won't be seen until next month's numbers. It also is looking like next month's revenue numbers will be $6,000 higher than this month, which will increase the profit.

I continue to be happy with the performance of this investment!

Tuesday, October 21, 2008

Hard Money #3 Finished

As expected, my hard money loan #3 was paid off today. The funds were wired by the escrow company today and my check will be in the mail tomorrow. The investment only lasted three months and I got the promised 10% annualized ROI. I'm on the lookout for the next investment now.

Monday, October 20, 2008

REI App For The iPhone

A week ago today, I got an iPhone. I don't know how I lived without this thing before! It is far more than just a phone. There are hundreds of applications out there, many of which are free, that provide useful functionality, good entertainment, or both.

One free app I found is called Buy That Duplex Lite, or BTD Lite for short. This is a simple little investment property analyzer. You input the property price, down payment amount, loan interest rate, and loan length and it will calculate your monthly mortgage payment and cashflow. You can specify eight different monthly expenses (vacancy rate, maintenance utilities, property management fees, insurance, taxes, and Other) or accept the default values for these fields, and it will calculate your monthly cashflow. Although it is called Buy That Duplex, nothing in the program is specific to duplexes and this could be used to analyze any investment property. And although the calculations it performs are not complex and can be done in a spreadsheet or even by hand on paper, I think the real value of this program is that is runs on the iPhone. This enables you to take it with you when you go out looking at potential properties to perform on the spot analyses. It also gives you some ammunition for those real estate agents who assure you that every property they have available will cashflow. Simply plug in the numbers and see if he or she is telling the truth.

The default values for the expenses (entered as a percentage of the monthly rent) are reasonable and you can change them should you feel the need. I would like to see one more figure added to the cash flow analysis section: the annualized return on investment (ROI) percentage.

A version with more features, called Buy That Duplex Pro, is scheduled to be released next month. This version is set to include the features of the Lite version plus amortization tables, property appreciation tables, an equity analysis function, net sales proceeds calculator, and the ability to store favorites (for when analyzing and comparing several properties at once). No word on the cost for this version yet.

An added feature I would like would be a reverse calculation where you give the program the ROI you want, and it will calculate the price and/or down payment you need to obtain that rate of return. Perhaps that could be a feature in the full version of the program. It would also be nice if you could enter addresses for properties or use the iPhone's GPS feature to mark a location when at the property. Then tie that data into Google Maps. And how about using the iPhone's camera to take pictures of the various properties? Those would likely be deluxe features found in the pay version, but they would be very useful when comparing properties.

All in all, BTD Lite is a slick little program that will really help investors as they travel about searching for new properties to acquire.

Tuesday, October 14, 2008

Early Loan Payoff?

Got word yesterday that a title company has requested a payoff amount for hard money loan #3. This was a 1 year loan that paid me 10% interest. The loan has only been open for 3 months, so this will be paid off real early if the sale of the collateral property actually goes through. I'm a bit disappointed because I was looking forward to several more months of payments. However, this just means I'll get my principle back and can start looking for another investment.

Thursday, October 9, 2008

"Official" Vigilantism

I came across this story on CNN.com today. In a nutshell, there is a sheriff in Chicago who thinks there are too many foreclosures and will stop evicting "innocent" renters from properties. I can surely empathize with him. It would not be fun to evict people for no fault of their own. But enforcing the law sometimes means doing things that are not pleasant.

I agree that the tenants are not to blame for the foreclosure - in most cases. It's the landlord, after all, who has not paid the mortgage. However, that doesn't mean the tenants are entitled to live there for free. The law is the law and the sheriff should enforce it and kick the tenants out.

From what I can tell, the sheriff's main beef is that tenants are being evicted even if they have paid the rent on time. His justification for refusing to enforce eviction notices is the fact that the banks are not identifying the people living in the property when they issue him the eviction notices, as they should be. OK, maybe the banks should be doing that (although I think it might be rather difficult for them to do so, especially if the bank is located in another state). But by refusing to evict tenants at all, he is also allowing those tenants who do NOT pay their rent to remain in the property for free. He says he is coming across "innocent tenant after innocent tenant" that are being kicked out. Hmm. The last time I checked, it was a judge's or jury's responsibility to determine someone's guilt or innocence, not a sheriff's. And he obviously is taking the tenant at their word. As any landlord can tell you, tenants are known to tell lies now and again when it comes to rent payment matters.

But suppose the banks give the sheriff what he wants and they do start correctly identifying who is living in the building when they give him the eviction notice. This will not change what he has to do. He will still be required to evict the "innocent" tenants. Loan contracts clearly state that if the mortgage is not paid, the bank gets the property, no matter who is living in it. The tenants will still have to be evicted. Sorry, Sheriff. You have to enforce the law, no matter how unpleasant you find it.

As for wanting legislation to protect the tenants, what exactly does he want to see? The property owner go to jail? Well, that's not going to solve anything. The bank still won't get their money if they can't take back the property. First, there is no guarantee that the tenant's rent will even cover the amount of the mortgage in the first place. (If the owner was smart, it would, but in the midst of the real estate bubble, many, many people rented investment properties for less than the mortgage amount, hoping that appreciation would make them money in the long run.) Second, the bank does not want to be in the landlord business, so having the tenants remain in the property and just pay the bank instead is not an option. I'd be interested in knowing exactly what type of legal remedy this sheriff would like to see. I guarantee you it will not be fair to someone.

Thursday, October 2, 2008

Home Sells on eBay for $1.75

Now this could be a sweet deal. A woman bought an abandoned home for $1.75 on eBay. She'll have to pay an additional $850 in taxes and yard cleanup costs. From the looks of the place, she's probably also got some serious rehab work to do. Still, I think she's got a good chance at making some money on this one. If this truly was a bank-owned property, I wonder which bank is selling their inventory on eBay.