Preston Road Residential

George says, "The 9% yield on this gorgeous loan is MUCH too high; but the loan amount is fairly large. This looks like a very superior hard money investment for our investors.

Because I don’t have to pitch this cherry deal very hard, let me remind you folks that you should be taking a small piece of lots of different loans. Those of you in California need to diversify your portfolio outside the State of California. The Big One is long past due, and history (think Pompeii) doesn’t always happen to the other guy. Diversifying also reduces your stress level. If one of your borrowers pays slowly, you’re not going to lose much sleep if the deal represents just 7% of your portfolio. Another advantage of owning a small piece of 15 different first mortgages is that every year at least one or two of your deals will usually pay off, giving you some liquidity.

Whatever you do, stay the heck out of any hard money mortgage fund! The sponsors almost never (99.999999% of the time) charge a loan servicing fee large enough to keep their doors open during a recession. The last place on earth you want to be during a recession is in some hard money mortgage fund, where the sponsor has failed. Who handles the foreclosures? Who pays the taxes? Who pays the fire insurance? Oh, poop. That’s a big deal these days. Who winterizes the property? Who installs alarms and protects against vandals? With no sponsor, the REO’s in the fund’s portfolio suffer immense physical losses. The failure rate of hard money mortgage funds was close to 100% during the Great Recession, and the losses by investors were horrendous. What about Blackburne & Sons’ own mortgage fund? Fund II is just a tiny-tiny portion of our portfolio.

Oh, my goodness, hard money first mortgages must be terrible investments. Naw. You need income to live. You would need a whole lot of 1% CD’s (admittedly much-much safer than first mortgages) to generate a decent income these days. I would also proudly compare a diversified portfolio of 15 different small, lower-yielding, first mortgage investments to most competing investments (stocks, corporate bonds, REIT’s, etc.) during a recession. Have you noticed the word ’small’ coming up consistently? Folks, please don’t get freaked. I do NOT see a bad recession on the immediate horizon. In fact, in this month’s Investor Letter, I will be revealing some very encouraging economic research by Nobel-prize-winning economist, Milton Friedman, that suggests that extended booms do NOT produce bigger busts.

In conclusion, spread your mortgage portfolio out, and if you are invested in any hard money mortgage funds, run-run-run (faster!) to the exit. But George, I have been playing Russian Roulette for three years now. So far, so good. :-)"

Blackburne & Sons is pleased to present this new purchase money first mortgage secured by a two story 2,549SF single family residence and a 783SF cottage on a 20,000SF parcel located in Columbus, Franklin County, OH.

Franklin County, named for American statesman, scientist, and inventor, Benjamin Franklin, was established on April 30, 1803. The county government structure includes 33 agencies, 42 independently elected officials, and 39 appointed boards, commissions and committees. Franklin County is located in the Till Plains and the Appalachian Plateau land regions and has a total area of 544 square miles. The county is included in the Columbus, OH Metropolitan Statistical Area and, as of 2018 census, the population was 1,310,300, making it the most populous county in Ohio. Franklin County is home to one of the largest universities in the United States, the Ohio State University, which, as of fall 2017, had an enrollment of 59,837 students on its main Columbus campus. Franklin County is full of beautiful neighborhoods and is home to 19 Metro Parks with more than 200 miles of trails. It has a critically acclaimed food scene and top-ranked attractions like the Columbus Zoo and its neighboring water park.

Columbus is the state capital and the most populous city in the U.S. state of Ohio. With a population of 892,533, as of 2018 estimates, it is the 14th-most populous city in the United States and one of the fastest growing large cities in the nation. The City is the county seat of Franklin County and a has diverse economy based on education, government, insurance, banking, defense, aviation, food, clothes, logistics, steel, energy, medical research, health care, hospitality, retail, and technology. The economy of Columbus, OH employs 464k people. The city’s largest industries are Health Care & Social Assistance, Retail Trade, and Educational Services.

The subject is located in Marion Heights, a centrally located neighborhood in the Columbus/Bexley area, between E Broad St north and E Main St south, near Wolfe Park. The subject’s neighborhood is improved with public paved roads, private lighting and private sidewalks. Most of the homes were built in the 1920's with stone & brick exteriors.

The subject property consists of 3,377SF of living space, situated on a 20,000SF parcel. In total, the subject contains 9 rooms, 4 bedrooms and 3.1 bathrooms. The cottage at the end of the lot, built in 1926, is comprised of 783SF and is equipped with a kitchen, bath, 1 bedroom and a living room. The 2-story main house contains the remaining 2,549SF which includes a 1,390SF basement. It has tile and wood flooring, and stone foundation walls. The subject’s amenities include 4 fireplaces, a patio, a 2-car garage, washer and dryer units and a dishwasher. It has been updated with radiant heat, boiler, 2 updated electric panels and 2 central-air-conditioning units.

The borrowers are purchasing this vacant property for $795,000 from an estate. They will be coming to closing with approximately $230,955 cash, inclusive of closing costs. This property is located right next door to their primary residence and they will be setting up a lease-option to purchase with their son, who will eventually purchase it for $850,000. We have made a total of 14 loans to our borrowers’ parents, who are well known developers throughout Ohio. Three of the fourteen loans still remain on our books.

Our borrowers are a married couple who will be holding title through their newly formed LLC, and will personally guranteeing this loan. They have mid- credit scores of 635 and 556, and a reported net worth of $1,077,509. He works as a manager for his parents’ company, overseeing multiple real estate transactions, and she works for the family company as well as an admin support. In 2018, they reported a taxable income of $370,102 and reported a loss of $37,404 in 2017.

We engaged a local state certified appraiser who valued this property (AS-IS) at $825,000.

At an 9.0% yield, 75.0% LTV (PURCHASE PRICE) and a 72.3% LTV (APPRAISED VALUE) this appears to be a very reasonable investment. Investing in any first mortgage 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 property almost always needs to be renovated before it 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.

Blackburne & Sons Realty Capital Corporation--For more information, contact George Blackburne IV
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
Publicly advertised to California residents only under California Department of Corporations business plan permit.
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