The following constitutes a status report of the activities of the last 30 days for Menlo Gate Group One, LLC (“MG Group One”) for the duplex located at 1339-1341 Oxford St, Redwood City, CA (“Property”).
Financing and Closing:
We signed the closing escrow documents for MG Group One’s purchase of the Property on Friday, March 14, 2008. As this was not a “table closing”, the escrow closed on Tuesday, March 18, 2007. The only issue that presented itself to the company over the last thirty days was the impact of the “sub-prime” fallout upon the lending market. The lending industry had been turned upside down by the crisis and lenders were bracing for the conforming limit increase. Many lenders had over reacted on rates since the sub-prime fall out in August. Their guidelines and policies were changing on a daily basis. Notwithstanding the foregoing, we were able to obtain a favorable financing package at 6.25%. This is very favorable rate for a “non-owner occupied” property. The only option we were not able to obtain was a 7 year fixed due to the fact that lenders were charging a premium for long term fixed rates. In some cases, up to 300 basis points! Accordingly, the rate is fixed for 3 years at a rate of 6.25%. The monthly payment can be interest only. There is a one-year pre-payment penalty. We must commend the services of Terry Wilson at Servicentre Mortgage. Terry was in contact with us on a daily basis regarding rate changes, packages, limits, ect. Terry did a great job in obtaining a very good loan package during one of the most turbulent lending periods in the last couple of decades. The common consensus is that rates will stabilize over the next 12 months. We are keeping a close eye on the lending industry and in the event that a better package presents itself, we will investigate these options further in order to maintain a fixed rate for this property through the seven year term of the investment.
We held an “open house” for the property on Wednesday, March 19, 2008. We had published advanced notice of the “open house” approximately 2 weeks prior to close of escrow and responded to nearly fifty telephone inquiries during this period. As a result, we were successful in creating a pent up demand for this property. Further, on Sunday, March 16, 2008, we published a confirmation of the “open house” for Wednesday, March 19, 2008. Our market research showed that there was very low inventory for two and three bedroom units in Westside Redwood City. Based on the low inventory, we made the decision to go for the highest possible rent during this period of low rental inventory. Thus, we posted the two bedroom unit for $1,850 and the three bedroom unit for $2,350. As you may recall, our proforma rents for these units was $1,750 and $2,150 respectively.
We had an unprecedented turnout of approximately fifty potential renters on Wednesday, March 19, 2008 and took in nearly a dozen applications for both units. The following day, we analyzed the applications and performed due diligence for the chosen applicants for both units. We then contacted the chosen applicants and met for lease signing that evening. We signed a one year lease for the two bedroom at $1,850 per month and a one year lease for the three bedroom at $2,350. Based on the foregoing, we are ahead of our proforma figures in the amount of $300 per month.
To quickly recap, we closed the property on Tuesday, held the open house on Wednesday, and signed one year leases on Thursday for $300 per month over the proforma figures for the Property!
Now that we are in possession of the Property, the following actions will be taken:
1. Curb Appeal: Removal of two front cedar trees. We are taking estimates for removal of the trees and stumps. We will then remove the damaged driveway concrete and repour the same. The “chain link” fence will be removed and lawn sod will be installed with a single station sprinkler system.
2. Removal of flat work on side of house and replacement with gravel and walking stones.
3. Pressure washing and stain of deck, painting of interior of upstairs sun deck railing, removal and replace of deck supports, and repair of drainage downspouts.
4. Purchase and install of “coin operated” laundry machines. We anticipate that the machines will pay for themselves in approximately 6 months. They will then generate income for the remaining period of the investment.
Transference of Property to Menlo Gate Group One, LLC:
We previously forwarded the Operating Agreement for Menlo Gate Group One, LLC to all members. We have received executed signature pages from two members and await the remaining signature pages. Once we have received all executed Operating Agreement signature pages, we will transfer the property to the Menlo Gate Group One, LLC. The transfer documentation has already been prepared and Menlo Gate Group One, LLC has already been formed with the California Secretary of State.
We sincerely hope that you are pleased with the management of the property to date. We have attached the following documents for your review in connection with your membership and participation in MG Group One: (1) Closing Statement, (2) executed leases and disclosures for both 1339 and 1341 Oxford St units, and (3) photographs of the property in its present condition so that they can be compared to later photos once the above-referenced work has been performed. We provide the following information to all members in the hopes that all will continue to learn and educate themselves regarding the intricacies of rental property management. As always, if you have any questions, please don’t hesitate to contact us.