Wednesday, March 30, 2011

Transactions #12-14 of 52 in 2011

Transactions #12-14 are actually directly related to the first transaction of the year. How? Let me explain...

For the first transaction of the year, we lent $25,000 to a real estate investor that we had done business with before. He used the funds to put a down payment onto three properties and the owner carried the balance. One needed light rehab, the other two significant rehab. He told us that he had a contractor lined up and that the contractor would bring in fix-up funds.

Two weeks later he called back. His contractor disappeared. No one to do the work and no fix-up money. What did we want to do? Could we bring in the additional funds? He didn't have the resources. Oh yea, by the way, the city has a demolition order on all three properties and we need to convince Mayor Godfrey to stop the destruction order!

Clear Day Capital was not in a bad position, we had only $25,000 into the project. Worst case, we would have 3 vacant lots. The problem? Demolition is not free and the lots would have liens from the city for the cost of demolition and garbage removal. Lots cost money each year- taxes and insurance. New construction is not something we want to do- rehabs are much easier and less expensive and less time consuming.

We needed to make this a safer, more secure transaction and protect our investment. We wanted to make lemon-aid out of lemons. If we funded our current borrower the LTV would not be good and we would not have control. On the other hand, we didn't want to take the properties back- they did not fit our typical property profile and we didn't want to manage them.

Our original borrower went to our good friends and business associates (Shawn, Angel, and Sarah) at The Equity Growth Group (TEGG.) The borrower knew that they specialize in this type of house. What did they do? They called us since they know that we have capital!

We decided that we would work on this together. To make it safer, Clear Day Holdings purchased the three houses after we got approval from the mayor to delay destruction by 120 days. He required that we put rehab funds into escrow and have a firm bid from a licensed contractor, which we did.

Clear Day Capital provided the additional rehab funds, TEGG provides rehab supervision and property management when the houses are ready to be occupied.

We will be into the three houses about $150,000 total. This is low enough that we will be able to have good cash flow. The key for long-term benefit will be finding private money investors who want to lend us long-term (5-10 years) money and terms that we both win.

Want more details? Send me an e-mail, leave a comment, or give me a call!

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