21st Avenue Commercial

Angela says,"This is a small purchase money first mortgage, backed by guarantors with 750+ credit and 35% cash down. While some may shy away from an 9% yield thinking this yield is too low, please refer to George’s Advice For Successful First Mortgage Investing below. As for the subject property securing this first mortgage, the property is 100% occupied and in an area that is close to recent downtown business district redevelopment projects. This redevelopment of the downtown business district may be spurred given the proximity to New York City, and the flow of residents moving out of the big cities, to more suburban area living."

Blackburne & Sons is pleased to present this purchase money, first mortgage secured by 2,550SF, two-unit (one residential unit and one residential/commercial unit) two-story mixed-use property located in Paterson, NJ.

This first mortgage is being originated to purchase the subject property at a price of $400,000, with 35% cash down, plus closing costs.

Paterson, New Jersey is the largest city and the county seat of Passaic County. Passaic County has a population of 501,226, with Paterson reporting 146,199 residents per the 2010 census. Located just 15 miles from New York City, Paterson enjoys the benefits of its close proximity and is home to many commuters. Paterson is also the 3rd most densely populated cities in America, behind only New York City and San Francisco.

Per City-Data.com, in 1994, in 1994, the city was selected to become an Urban Enterprise Zone. This designation results in sale taxes that are half (3.3125% vs 6.625%) of the rest of the state, as well tax credits/incentives for hiring locals. This designation is set to expire in 2025. Major employers in Paterson include St. Joseph Regional Medical Center and the City of Paterson.

The subject property is a two-unit (one residential unit and one residential/commercial unit), two story, 2,550SF mixed-use property on a 5,000SF parcel. It is constructed with a concrete foundation, with brick / masonry exterior walls and a flat roof.

The first floor is a single-unit that contains both a salon and a 3 bedroom / 1 bathroom apartment. The appraiser notes that the salon space is estimated to be 491SF of the 1,800SF unit. Per the rent roll provided, the commercial unit is rented for $2,700 per month with a lease that is set to expire in July, 2023. The second story is a 2 bedroom / 1 bathroom apartment. Per the rent roll, this unit is 800SF and is rented for $1,300 per month. This unit is currently on month-to-month lease. Total gross scheduled rent is $4,000 per month, which is confirmed to be market rents by the appraiser.

The appraiser notes that the neighborhood surrounding the subject property is a mix of commercial / residential properties, with commercial properties consisting of low-rise office buildings and small retail properties, i.e. gas stations and convenience stores. Recent redevelopment of the downtown business district has reportedly spurred growth and increased the residential appeal of Paterson, NJ. The property also has close proximity to the downtown shopping district, as well as hospitals and new residential developments.

The borrower will be a newly formed New Jersey LLC, with a husband and wife being 50/50 members and will also be providing their guarantee (“Guarantors”) for repayment of this Note and Mortgage.

Guarantors consist of a husband and wife that are self-employed as barbers. The husband is not a US Citizen, but is a legal resident and the wife is U.S. Citizen. They have 769 and 798 mid-credit scores, with taxable income of $66,684 in 2019 and $64,775 in 2018. Guarantors report a personal net worth of $440,310, which is inclusive of their personal residence.

We engaged a local MAI appraiser who valued this property at $400,000. A local broker was also engaged who performed an opinion of value, and valued this property between $435,000 and $440,000.

At an 9.0% yield to the investors and a 65.0% LTV, this appears to be a reasonable investment. Investing in any first mortgage involves substantial risk, so be sure to read the Risk Factors section of the Offering Circular carefully before investing. 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.

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.
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.
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.
You can also buy some of our smaller deals in their entirety, but I only recommend this if you are richer than Crassus.
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.
During the S&L Crisis, commercial real estate fell by 45%. Within three years, values reached new highs. During the Dot-Com Meltdown, commercial real estate fell by 45%. Within three years, values reached new highs. During the Great Recession, commercial real estate fell by 45%. Within three years, values reached new highs. Some time in the next decade, we will have another opportunity to snatch up prime commercial real estate at a huge discount. You will be terrified, but when Blackburne and Sons invites you to join a syndicate to buy a nice commercial property at a 35% discount off its prior high, just remember that the best time to invest is when blood is running in the streets. Why not when real estate has fallen by 45%? You’ll never catch the very bottom because historically the bounces off the bottom happen much too fast. Bounce-soar. You will be terrified, but just remember that the best time to invest is when blood is running in the streets.

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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