2016 01-26 EAC Community Weekly Newsletter

EXECUTIVE PARTNERS

Kevin Yoo, CEO

If you are an EAC Community Investor Partner, please read below and everything I write for you in the next few weeks. It is very important you understand how our Community operates.

EAC Community has brought our IPs the best deals we can find and paying out above market rates. And our IPs have been very good at providing funding for our projects. However, we have been having some reluctance as of late in funding some of our short-term lower-return deals.

Lately we have had many many IPs, turn down our deals returning 12 to 15% stating they want to wait till EAC is offering 18% or higher deals. I want to make an argument to our IPs that this is essentially a flawed investing technique that will in the end provide you with lower returns.

The Time Value of Money or the Speed of Money.

If you invest at 18% on a short project and do this only for 6 months out of the year because you are waiting for such deals to come around, your effective return is only 9%. If you invest at 12% on a long project for the entire 12 months of the year, your return is 12%. If you wait for a higher rate deal and keep your money in an account getting no or very little interest, your money is moving at an extremely slow pace. However, if your money moves into a different deal the moment it gets back to you, it is moving at the fastest possible rate. This is the key to generating wealth efficiently and rapidly.

I am hoping that this simple idea alone will convince our IPs that funding any deal we bring to you is the best for your bottom line. This should be something all IPs can and should do because as of this writing, we have never failed to return our IPs their principal or failed to pay out the interest due to them. However, if this does not convince you to fund even our lower return deals, I will in the next update provide you with other arguments that hopefully will convince you.

John Hostetler, COO

The final appraisal for the B2R refinance is finally complete and we are moving quickly toward a close date. I am pushing for as soon as possible, of course, but the pace is dictated by B2R. Having gone through this process twice with B2R now, I am even more inclined to finalize our next round for the South Bend and remaining Jacksonville properties with either Colony American Finance (10-year balloon) or Lima One Capital (30-year fixed.)

We are also applying this week for a loan with a somewhat atypical hard money lender, Barnett Capital, for one of our properties in St. Louis. We feel that it is important for us to build a relationship with a commercial lender like Barnett to have access to quick, relatively inexpensive money for short term projects in cases where our IPs are not able to fund.

Finally, I spoke with a banker, Kyle Hanke at Great Southern Bank in St. Louis, referred to us by Mary Krummenacher late last week. Kyle has some very interesting long-term programs for financing the St. Louis properties that we will pursue. A big thanks to Mary for this referral!

Olga Levin-Diaz, CFO

I am happy to report that we are getting close to completing building our tracking tools in excel with Pivot Tables. We are tweaking the way the results are shown and making sure the data that feeds it is accurate. We had to essentially build a software that once the data is in, will show us important indicators about how each of our markets and partners are performing in an automatic way and will help us make better decisions.

We are also making progress with Podio and are getting more comfortable using it. I would like to zero in on the rehab app that helps us track the progress of all of our projects that are currently in construction and make sure things are moving along according to the original plan. I believe we were going to get some help from Antonio and also brainstorm on changing the flow of items in the scope of work to make better use of this software.

MANAGING PARTNERS

Vil Nikollaj, Managing Partner

3152/3154 Oregon:
Getting new bids to complete work that Jenny, previous GC, did not finish. Overall progress ~50%.

2835 Winnebago:
Snow and cold weather conditions did not allow for the roof to be put on. Also, original contractor slated to perform work not following up with any calls. Working on getting new bids from other roofers.

8100 S Broadway:
Snow and cold weather conditions did not allow for the roof to be put on. Also, original contractor slated to perform work not following up with any calls. Working on getting new bids from other roofers.

Chad Urbshott, Managing Partner

4384 Ingleside:
Ingleside should close within the next week.

GROUND PARTNERS

Lou Ellis, Ground Partner from Jacksonville, North Carolina

Awaiting updates.

Steve Shaffer, Ground Partner from Southbend, Indiana

226-228 Cleveland:
Construction phase, moving to interior insulation and drywall.

201 Cleveland:
On rental market.

2016 Berkley:
In last stages of completion for rental February 2016.

126 E Broadway:
Initial scope of work moving forward for March 2016 rental potential.

Andrew Davis, Ground Partner from Orlando, Florida

602 Emma:
Awaiting updates.

1215 Avenue L:
I have found a suitable candidate for the front unit at Ave L for 600.00 a month. It is a single woman with an income over around 2100.00 a month. No criminal history or any evictions. Solid job and her boss gave her a solid personal reference. She has no credit, (not bad), due to having no lines of credit. Yes this does not give us a good line on how she is with paying bills, but it is a good thing because she has no monthly bills. Being that she has over 3 times the monthly rent as income and no outstanding liabilities it would be reasonable to state she would have no problems paying the rent. Her move in date is February 1.

Giovanni Gracias, Ground Partner from San Diego, California

4748 College Ave:
– We finally got past the city requirements for density by resubmitting an entire new set of plans for review.
– The delay was as a combination of changes to the plans and a new city requirement that mandates that when a property is located in a high density area and there is a room addition to be made, it has to go through a separate review process to make sure guidelines are met.
– We have gotten to green light to proceed and finish the project with no further delays.
– As of today we are 85% completed.
– We plan to be on the market in the next 2 weeks

2672 Escala Circle:
– We received to offers at $520K and $535K the last 2 weeks. I had both offers cross qualified with my preferred lender (Prospect Mortgage) and discovered that the $535K offer was not very strong due to the buyers financials. The $520K was stronger but $520K was the max they could go up on their offer.
– My Realtor recommended that we take the list of the market for a week to allow 2 other similar condos in the community to close. As of today 1 closed at $545K and the other is still pending and expected to close at $549K.
– Once the 2nd property closes we will re-list the property at $549K since we will have 2 additional recent comps

12081 Calle de Medio:
– We are closing escrow most likely within a week or so.
– Current offer is at $324K which is in the range of ARV we predicted a few months ago.
– Escrow will be sending payoff demands to EAC and myself by tomorrow.

Other updates:
This afternoon I am meeting with the only registered HUD Real Estate Broker in the metro San Diego area. She is responsible for re-listing REO inventory for various Asset Managers at large banks. Last year she handled 35 such properties and a majority were pocket listing for which she had buyers. My goal is to be on her buyers list and pick up some off market/distressed properties with great margins..

George Flint, Ground Partner from San Diego, California

1222 Muirlands:
Muirlands property is still waiting for permits. We went down to the city to finally resolve the rest of the items and discovered they were not working on them essentially because of the planning department holding up the rest of the departments. We are confident we have resolved this by the end of today/tomorrow and we’ve been told that we can fast-track the remaining departments. (3 out of 4 outstanding indicated this).

Pescas:
Pescas permits were pulled Tuesday and we’ve begun demo and concrete work.

Other updates:

John Allen, Ground Partner from San Diego, California

4336 53rd Street:
– Matt Weaver has a buyer circling. The buyer viewed the property on Friday and touched base with him, mentioning that he will discuss a potential offer over the weekend with his capital sources. The buyer had very minor concerns regarding the plans, and may request some redesign. For example, the buyer mentioned that the bathrooms don’t stack which would add plumbing and structural costs. From our experience, these costs are very minor and don’t add up to very much. However, we told Matt that we can work with them and come to an agreement on it somehow, but the sooner we get into negotiations, the easier and cheaper it will be for them to change the design if that is the way we wish to proceed. We may also just agree to knock off $10k or so to the purchase price.

Matt is working on getting him to the table, so he will keep me posted. I hope to have good news soon.

Other updates:
– I am in contract negotiations with the seller of the property on Colony Drive and in all likelihood I will have it under contract and in escrow within the week. I have narrowed down some funding sources who may offer to fund up to 90% of the project, in which case we would only need $400-500k of capital. This is much more appealing from an investment standpoint, as the returns are excellent. Touch base with me for more information.

Samuel Lord, Ground Partner from St. Louis, Missouri

3441 Shenandoah:
As of today, finish work (trim out and painting) beginning. Will push to have this done asap.

Had issues with gas company due to their lack of information on their systems. Gas and heat on in the building.

Had break in over Sunday/Monday. walked property Sunday and upon return on Monday, home was vandalized. AC Coils were removed. Break in area was at rear of home. Notified police and filed reports.

4759/61 Alaska:
No issues to report. Have shown various people the vacant unit. In process of reducing price to get occupied.

4552/54 Virginia:
Vacant unit being finished this week. Paint out and replacing carpet. Adding a few additional base cabinets in kitchen. Will have to replace refrigerator due to bad smell cannot be removed. Marketing unit this week.

Had break in during day on 1/25/16 of first floor unit. Had employees on-site in different unit but did not see anything. Tenant is irate because we had people there and did not hear anything out of the ordinary as there is rehab going on next door and on the street as well as mechanic shop next door.

3501 Iowa:
Issues have been addressed as to the roof and basement leaks. Ellis Construction did removal and rebuild of the back portion of the home that was creating the major issue.

Downspout was not properly run (missing section). Lemonstree will replace what is there with new section.

Inside work on 2nd floor was to be through other group. Lemonstree will speak with Ellis Construction and verify who will take care of those issues.

3116 Michigan:
Tenant contacted Saturday night to advise backup in lateral. Found issue at the MSD side and unclogged and had to clear whole line from house. Have broken clay pipe nearer home at drain. Will have to replace small section here.

Due to an original drain tile for water, it is only buried 1.5 foot into ground. Will set up and will be replacing this section and provide cost involved.

3438/40 Ohio:
Had break in lateral at alleyway. Have received two bids back to replace the line from clean out to MSD. Hoping to have third bid today.

Presently bids are $4500 and $1500. The $1500 bid is from contractor who does most business with the larger rehabbers in St. Louis to include our group presently as well as those Lemonstree is involved in.

Other updates:
We are updating all tenants again on procedures for them and the property security. Most will not call the police for any reason but need to realize they are their neighborhood and its up to them to help us and the city, make it a safer place to live.

With empty units, we are looking at alternative security methods that do not require phone lines or internet (Simplisafe). Presently, systems are much cheaper than traditional methods like ADT and can be moved between properties as needed and set up statically versus hard set in. It will also serve as “sign in” method as can be remotely set on/off and subvert potential hazards in giving codes to contractors.

Nathan Turner, Ground Partner from Ontario

4233 Comanche:
Spoke with the realtor today and she told me that the occupants had confirmed today that they would be out by the end of the day tomorrow (Jan 26). She also said that we’re getting off quite easy with only $500 to get the people out as banks are paying anywhere from $3500 to $5000 to get people to leave. As soon as they are out, Sue (the realtor) will have a look inside and send pictures and we’ll list as soon as possible.