Loan Number: N2463
Loan Amount: $217,750
Minimum Investment: $10,000
Call for availability of smaller participations
Type: First Mortgage
Yield: 10.0%*

Important Links:
How to Invest in This Loan
Suitability Requirements
Offering Circular
Loan Servicing Agreement
Audited Financial Statement for B & S
Inventory of Available Loans
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PROPERTY

Project: Maple Heights Apartments
Property Address: 5044 Warrensville Center Road, Maple Heights Ohio 44103
Description: The subject property consists of an 11-unit apartment building with 13,620SF on a 0.486 acre parcel located in Maple Heights, Ohio

For an aerial view of this property...Click Here!

MAPLE HEIGHTS APARTMENTS

George says, “This loan is a speculation because of the double digit yield - and correspondingly high loan payments - and because this family has had some financial stumbles.  That being said, this is a small loan, the borrowers have good credit, and the apartment building has eleven units.  Therefore the loss of a tenant or two is unlikely to send the deal into a free fall.  You do need to be, however, more experienced and risk tolerant to invest in this deal.”

Blackburne & Sons is pleased to present this new first mortgage secured by a 13,620SF, 11-unit apartment building on a .0486 acre parcel located in Maple Heights, Ohio. 

Maple Heights, an inner ring suburb of Cleveland, is located within Cuyahoga County and has a population of 22,478, according to the 2016 United States Census bureau. It is primarily a bedroom community with commercial facilities located along high traffic corridors. This community borders Cleveland to the north and Bedford Heights to the East. Access to I-271 and 480 are with in 3 miles east along Emery road.

The Thistledown Racino is located within one mile, northeast along Emery Road in North Randall, Ohio. The Racino is a complex with live racing, feeds from other tracks, betting, casino games & several dining options. The Randall Park Mall (closed since 2009), across from the Racino, will be the site of a new Amazon Distribution Center. This is located approximately a half mile from our subject property. This Distribution Center will provide about 2,000 jobs with major shopping and surrounding retail located one mile south at Southgate Shopping Center. Click here for further information.

A far-from-prime, lower-middle-income area, the subject neighborhood, located right on the edge of Maple Heights, is built up primarily with post WWII bungalow and ranch style housing on city lots. According to the appraisal, the subject property is located in a community with a 5-star police department rating, and a varied workforce.

The subject property is improved with a three story masonry, 11-unit apartment building, built in 1956, containing 13,620SF on a slab foundation. There are six (6), two-bedroom units and five (5), one-bedroom units, and a locker and laundry room. The exterior walls are common brick and the windows are wood frame, double hung with storms and screens. There is asphalt paved parking for 19 cars, which per the borrower, was replaced last fall. Each unit has a forced warm air gas furnace and through-the-wall A/C units, stove and refrigerator. There is a newer 100-gallon water tank and all copper plumbing.

Concerns with an adjacent parcel were notated in the environmental report which resulted in a moderate rating. The findings provided were not related to the subject property site but given the proximity to our property, the environmental firm had to increase the rate from low to moderate. Please be sure to read the environmental report for detailed information, but in summary, the findings by the environmental company declared no further investigations are required.

The borrower will be a Family Limited Partnership, with limited partners consisting of one third husband and wife, and two thirds by three family trusts, each of which have our personal guarantors as the trustee/beneficiary. The guarantors are husband and wife and have owned this property for over 25 years.

Our guarantors have mid-credit scores of 753 and 685 and a stated net worth of $2,821,227. Their personal income was reported as ($3,962) in 2015 and ($138,996) in 2016. The guarantors have filed an extension for their 2017 tax returns, for both personally and any applicable business tax returns.

Losses on the personal tax returns relate to a net loss carryover (NOL Carryover) from previous years. Prior to 2016, our guarantors owned several single family homes in Florida and Ohio. When the real estate market took its turn in 2008-2009, they were forced to sell some of these properties at a loss. Then, in 2016, the sale of another investment property resulted in a large loss. After purchase, it was discovered the investment property had structural damage and issues, and in order to sell the issues had to be fixed, which put them in a position where their basis exceeded the market value. This loss is reflected on the Schedule E on the 2016 personal return, from Ann-Mar, Inc.  

All of the income from the subject property is reported on the Limited Partnership’s tax return. For this property only, the net income for 2016 and 2015 was $3,885 and $21,397, respectively, after adding back depreciation. The borrower provided a 2017 profit & loss statement reporting $29,626 in net income. The borrower says that due to an eviction, they had one year of loss rents for one-unit of $7,800. The property is now 100% occupied and has scheduled gross rents of $6,440 per month. All tenants are on month-to- month leases; however, the guarantors are in the process of obtaining new leases for tenants. 

The reason for this loan is that in 2016 the husband became ill. A few payments were late and property taxes fell behind. At the same time, the note matured and the bank decided not to renew/extend. Per the borrower, the bank is giving the borrower time to refinance. However, foreclosure was filed back in 2016 and is still active. The current lender has agreed to allow borrower time to pay the loan in full, with the next hearing set on this matter in September of this year, if the loan is not paid in full by such time. Property taxes are current.

A local appraiser valued this property at $335,000. We also engaged a local broker who performed an opinion of value and valued this property at $310,000.

At a 10.0% yield and 65% loan-to-value, this appears to be a reasonable speculation. Investing in any first mortgages involves substantial risk. A large and prolonged decline in real estate values is possible. Be sure to read the Risk Factors section of the Offering Circular carefully before investing. Foreclosed commercial properties almost always need to be renovated before they can be leased or sold, so be sure to maintain some liquidity.

1. You should spread your mortgage investment portfolio out among lots of different deals. If you have $300,000 to invest, you should invest $10,000 to $20,000 in 15 to 20 different fractionalized first trust deeds. For example, if the deal is a $300,000 first trust deed on an office building in Boise, with a $15,000 investment you would own 5% of the loan. By spreading your money out into a bunch of different deals, you are achieving the diversity of a fund without the failed fund sponsor problem. If you are extremely wealthy, you could double (or even triple) my suggested investment amounts, but be careful about pouring too much money into a single deal. We once had a whole building fall into an old coal mine. Ouch.
   
   
2. Be wise and resist investing in any first trust deed yielding more than 9%. I would personally never invest in a first trust deed with a double-digit yield. The payments slowly grind the borrowers into the dust.
   
   
3. Blackburne’s Law theorizes that a portfolio of 8% and 9% first trust deeds will outperform a portfolio of 11% and 12% first trust deeds over a seven-year term. Only our wisest (and eventually the happiest) investors listen to me.
   
   
4. You can also buy some of our smaller deals in their entirety, but I only recommend this if you are richer than Crassus.
   
   
5. It is very easy to lose money in hard money first mortgages, so fight-fight-fight against the temptation to invest in high-yield deals. As Nancy Reagan used to say, “Just say no.” But if you choose 7% to 9% first mortgages, I predict that you will be very, very pleased. 

Blackburne & Sons Realty Capital Corporation--For more information, contact Angela Vannucci
4811 Chippendale Drive, Suite 101, Sacramento, CA 95841
Telephone: (916) 338-3232 * Fax: (916) 338-2328
Real Estate Broker -- California Bureau of Real Estate -- License Number 829677 -- NMLS Number 103430
Publicly advertised to California residents only under California Department of Business Oversight business plan permit.
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