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May 25, 2017

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Cleveland Heights Note offering

May 25, 2017

I have another note offering that I'm going to be going over today. This one, it's a little bit different, because I'm still doing negotiations with the seller on this particular note. They had asked me not to disclose any specific or confidential information until I own the note. I'm not going to be showing you guys the street address or owner name, anything like that, not that I really do anyways. The property is located in Cleveland Heights. It's a suburb of Cleveland in Ohio. If you look on Google Maps The property is pretty much located directly under the words of Cleveland Heights. Here's a little bit of info about the property. It's a three bedroom, two bath house and between 1,500 and 1,600 square foot, and the lot size is about 1/4 of an acre. Though it is owner occupied, and one of the reasons why I think that this is a pretty inexpensive property for the area, is the school ranking is a D, but the crime level is a B. For me, that shows that the house tracked to some less desirable area, and it's probably on the fringe between some good and not so good neighborhoods. That's one of the reasons why you really need to watch these type of transitioning and gentrifying neighborhoods. The loan was purchased in 2013 originally for about $75,000. They've been in default for a while now. The UPB on this property is about, $73,000. Even if this property didn't depreciate in the last couple of years, we're going to be pretty close to a break-even or a negative equity situation. Fortunately, for us, because we're buying the distressed note, we get a bit of a discount. Here's the property itself. You can see it's four sides, brick, going to be pretty standard for a Midwestern build in that time frame, the mid-1950s. The cost is a percent UPV is 45%; cost to value is 41%. That's because we had a BPO done on this property a couple months back, and the value came in at $81,000. With the UPB being at 73,000, that gives us a little bit of leeway. The other thing that was interesting is the county had this assessed at $105,000. Then you go on RealtyTrac, which is $45,000. Those are our two extremes for the neighborhoods. Eppraisal had it at $75,000. Zillow is at $85,000. Then NARRPR had it at $105,000 as well. I think that BPO of $81,000 is going to be a safe bet right in the middle of the notes that we're seeing. One of the kickers with Ohio is the estimated time on this is 19 months if we do a foreclosure. There's really no other way around that. It's just Ohio, and they take a while to get through the process. It really takes down on our velocity of capital, but if we can get a deed in lieu then we'll be in pretty good condition. In yearly taxes: the property pays $3,300 dollars a year in taxes, but there's no current taxes out. We don't have to worry about anything. There's no HOA liens. Were were no mechanic's liens that pulled up in our research. No senior or junior liens. It's a standard 30-year note. If we look at our deed in lieu, here's what we're looking at. If we did a deed in lieu and we rolled in our construction costs, we're looking at a shade under $50,000 as the expense on this. Our resale margin is $26,900, let's just call it $27,000. Our return on investment is about 55%. Pretty big fan of that. The reinstatement is 12.4% annualized yield. The gross payoff margin, if we can get them to refinance and take us off the note, this would be our best opportunity. It's at $40,000 for that property or a gross payoff of about 120.9%. Foreclosure, as we mentioned, is the one option that we're not really looking to do, long time frame on that. This, a foreclosure, if we take it back it as an REO ... This doesn't include the construction costs, the $26,000 in revenue. Depending on the condition of the property, we could go from 55% down to 20% return on our investment. You're talking about 10% annualized. That's not really something we're wanting to do. The investor cost on this is going to be $40,000. That's because our acquisition cost is going in at about $33,250. Then our reserve holdings are going to be $6,750. You probably noticed for the deed in lieu that this $49,000, and we're just asking for 40. That's because we're going to be equity partners in this and bringing some of our own capital to the deal as well. If you guys have any questions about this particular property, feel free to reach out. Again, the email is greg@gjscv.com or just visit gjscv.com. I'll talk to you soon.

 

 

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