Maui Vista Residential Condo

George IV says : “One of the best parts about purchase money transactions, is that the borrower is forced to put "skin in the game". In this case, the borrower is bringing to closing roughly $160,000. This is not a line item on a balance sheet, but cold hard cash being brought to the table.”

Blackburne & Sons is pleased to present this purchase money first mortgage secured by a fully furnished, 600SF residential condominium located in Kihei, Maui County, Hawaii.

The borrower is purchasing this property for $409,500, and will be putting down approximately $160,000 inclusive of closing costs.

Founded in 1905, Maui County, officially the County of Maui, is a county in the U.S. state of Hawaii who's county seat is Wailuku. It consists of the islands of Maui, Lānaʻi, Molokaʻi, Kahoʻolawe, and Molokini, the latter two are uninhabited. As of the 2010 census, the population was 154,834. The economy of Maui County, HI employs 84k people. The largest industries in Maui County, HI are Accommodation & Food Services (16,525 people), Retail Trade (9,663 people), and Health Care & Social Assistance (8,084 people). The highest paying industries are Utilities ($73,935), Public Administration ($54,230), and Management of Companies & Enterprises ($51,667).

The subject property is located in the city of Kihei, who's population was 20,881, per the 2010 census. Situated on Maui's western shore, Kihei has grown exponentially over the years and now offers an impressive selection of hotels and restaurants, catering to visitors who flock to dive, swim and sun themselves on Maui's fine white sand beaches. Appropriately, Maui has been voted the best island in the world, with daytime temperatures ranging from roughly 80 degrees during winter to 90 degrees during summer. There are several research facilities located in Kihei, including the main offices for the Hawaiian Islands Humpback Whale National Marine Sanctuary, seed operations by DEKALB Genetics Corporation and Monsanto Company and the Maui Research and Technology Park, which is home to the Maui High Performance Computing Center (MHPCC), and the Pacific Disaster Center and is overseen by the Air Force Maui Optical and Supercomputing observatory (AMOS).

The Kihei Aquatic Center hosts swim meets and other aquatic activities.The Valley Isle Road Runners host a number of running events throughout the year that include the Maui Marathon Events, Iao Valley 10k and 5k and the Na Holo Wahine 5k and 1 Mile walk for women.

Built in 1980, the subject property is one unit in a complex of 288 residential condominium units. This four story complex has three buildings total with 3 swimming pools, 6 tennis courts and BBQ areas. The subject unit is 600SF and consists of one bedroom and one bathroom. It comes fully furnished with the sale. This property is centrally located and right across the street from Charlie Young Beach; one of the best beaches in Maui. The property is part of a Homeowner’s Association and monthly HOA dues for this unit are $545. The borrower’s parents own two units in this same complex that they rent out as vacation rentals. Our borrower will also be renting this unit as a vacation home for $175 per night.

BORROWER SUMMARY

Title to the property will be held in a Limited Liability Company, and was formed in 2016. Our borrower, an unmarried woman, is 81% owner of the LLC, and is the managing member. The LLC’s primary business is stone and slab work for residential and commercial properties. The 2019 business tax return reports net income of $122,441 ($146,155 if you add back depreciation). In 2018, the business tax return reported $83,506 in net income ($123,806 if you add back depreciation). We were provided a 2020 profit & loss statement showing the net income to be $216,279.

The guarantor reports a combined (business and personal) net worth of $2,883,362 and has a mid-credit score of 591. The low credit score is due to identity theft by a former employee. Supporting documentation on this will be in the due diligence file. Her 2019 personal tax returns report $109,177 in adjusted gross income and 2018 personal tax returns report $14,215 in adjusted gross income.

We hired a local certified residential appraiser who valued this individual condo unit with an AS-IS value of $410,000.

At a 9.0% yield to the investors and a 65.0% LTV (Appraised Value) this appears to be a reasonable investment. Investing in any first trust deed 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. 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 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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