With all the best,

Klaraos

Klaraos Neighborhood Redevelopment successfully purchased its 15th home August 26th.  It is the 8th home in Sacramento, with the other 7 located in Elk Grove.  Additionally, this week, KNR 14, located on Connor Circle in Sacramento has gone on the market after purchasing it last Thursday.  We are continuing our pace of one home a week, and we have now purchased four homes in the month of August, on top of the 5 we purchased in July.

On the horizon, we should have two homes close escrow in the first part of September, and two close escrow in the latter half of the month.  Four sales in a month would be the most succesful closing month to date, so we are eagerly anticipating a happy month of September on top of two solid prior months.

Many people have seen the news lately that pending home sales are down 25% from a year ago, and have shown some concern.  While the market continues to deliver these types of news events, KNR has seen no slowing in activity; July and August have been our busiest and most successful months to date.  This is attributed to our disciplined approach to buying homes that will sell quickly, and we look forward to continued success. 

I will send an updated map of home purchases next week, as I have received several positive comments about that type of posting.  I will also send a detailed (albeit brief) month end report to all investors towards the beginning of September, and will continue to do so on a monthly basis.

Have a wonderful weekend everyone!

It has been a while since we have updated the USDR performance.  As many of you know, the summer months were expected to be lucrative as far as payments back to the fund, and this has proven to be true.  On July 30, 2010, Debt Associates received $96,371.26.  The distribution was a payment of several cases, but most notably part of the Six Flags bankruptcy and the Smurfit Stone bankruptcy.  Then, on August 18th, another $235,899.44, which was comprised of a continued payment of the Six Flags bankruptcy and the Bill Heard Enterprises bankruptcy.  The accounting has been updated on the distributions, and reinvestment has occurred for those who desired the funds to be reallocated.

I am also very happy to report that Debt Associates received its largest distribution to date on August 25th in the amount of $611,864.27.  The payment was in the Flying J bankruptcy, and we are excited about receiving the distribution from this.  The documents have been sent to the CPA for auditing the funds, and we will continue to distribute to the investors when the funds have been properly accounted for.

To date, USDR I has returned $1,786,253.95 back to the investors.  We look forward to continued success and distributions back to our investors.  If you have any questions on USDR I, Debt Associates, or other USDR investment opportunities, please feel free to contact us.

Thank you,

Klaraos

To date, KNR has closed five escrows of the 13 homes purchased and an additional four are in escrow.

As always, if you have questions on specific performance, please let me know.  We have been gathering plenty of data and statistics that we can share with you on an individual level.  If you have any other questions on Klaraos Neighbhorhood Redevelopment regarding investment into the fund, please call or send an email and we will be happy to share the information.

Have a wonderful weekend everyone! 

Best,

Geoff

Just wanted to share a map of the Sacramento area with pinpoints in the location of the homes we have purchased.  While many of you are familiar with the neighborhood's that we are purchasing homes, some people are more visual (myself included).

I am very happy to report that KNR has already matched the accomplishments of the first quarter, and we are still only in the first week of August!  After a slow, albeit steady, end of June, KNR purchased 5 homes in the calendar month of July.  Two of the homes were purchased in the city of Sacramento, and three were purchased in the city of Elk Grove.  The purchase price of the five homes for the month of July totaled $1,113,000.  While purchasing the homes is a great part of the overall investment strategy, selling the homes is the most important part.  After closing two homes in the Second Quarter, we are happy to announce two additional closes in the month of July.  KNR 2, purchased in May, closed on July 2.  The total hold time for KNR 2 was 51 days.  The other home that closed escrow was KNR 8; a home located in Elk Grove on Modena Way.  KNR 8 was purchased on July 6, 2010 and we received the funds at the close of escrow on July 23 – a total hold time of only 17 days!  KNR 8 has easily been the largest win for the fund, returning over 20% to the fund in profits in less than three weeks.  On an IRR basis, this is off the charts.  We have software in the office that runs our IRR calculations which calculates up to an IRR of 999.99%, and when computing the returns for KNR 8, the system cannot compute it; estimates are in the 4000% range for the home.  Of the other homes purchased in July, one is already in escrow.  We closed out the month of July by successfully purchasing a home on the last two business days of the month, which should be on the market tomorrow.

If July is any indicator, August and the upcoming months should be equally as promising.  We purchased our 12^th home for the fund on August 3, 2010.  We have two homes that are scheduled to close escrow during this month (KNR 3 and KNR 5), with KNR 9 following in September.

For the life of the fund, we have made 12 purchases in 110 calendar days.  Counting weekends and holidays, we have been on a pace of one home per week, which was one of our initial goals as we grew the size of the fund.  The four closed escrows have achieved a total gross profit of $130,000 thus far.

Overall Statistics at a Glance

Average Purchase Price - $226,333.33

Maximum Purchas Price - $290,000

Minimum Purchase Price - $136,500

City of Sacramento Purchases – 6

City of Elk Grove Purchases – 6

A chart on the growth of the Fund since inception:

If you have any questions, please feel free to contact us about your investment in Klaraos Neighborhood Redevelopment, or for the opportunity to invest in Klaraos Neighborhood Redevelopment.

The following chart is the spread between the average BAA corporate interest rate and the 10 year US Treasury rate. As can be seen by the red circles persistent expansions of the interest rate spread above its moving average line have consistently been associated with significant broader market selloffs. The lone green circle on this chart illustrates the beginning of periods where persistent contraction of the interest rate spread below it’s moving average line have consistently been associated with significant broader market rallies.

The most recent month has been a time of increasing liquidity stress, which means it is more difficult to get money. Corporate interest rates have remained fairly stable, only dropping (from 6.51% to 6%) 7.8% while 10 Year US Gov’t Treasuries interest rates actually dropped (from 4.01% to 3%) 25.2% As is illustrated by the following chart. During times when financial events, as opposed to economic cycles, drive Gov’t rates, US Gov’t Treasuries typically lead corporate rates in an inverse relationship. As economic stress picks up, US Gov’t interest rates drop. If that stress passes (sometimes just temporarily), as with the Europe credit crisis so far, then corporate rates remain fairly stable and US Gov’t rates drop and then typically revert back. The junction we find ourselves at, presents two ways: one way could be that US Gov’t interest rates revert back up, or corporate rates drop and close the spread exhibiting reduced financial risk stress, or the stress being exhibited by US government slowly bleeds into corporate bonds, further increasing the spread by forcing corporate rates higher. Time will cure this question.

As long as the red line (7 week moving average) is downward sloping and below the yellow line (13 week moving average) the potential for a second leg down in the economy will remain high as well as the opportunity for government intervention, which that will is slowly beginning to fade along with h There has been a lot of attention focused on ECRI’s WLI index lately and if it is predicting simply a growth recession, or outright second leg recession. Following is a chart for ECRI’s US Long Leading Index and from the chart you can see that it has simply gone flat as of late since spiking off of the March 2009 bottom. For comparison purposes the last double leg recession was in the early 80’s when we were just coming off the Volcker years when he successfully broke the back of inflation by raising interest rates and our new Fed chairman Mr. Greenspan was beginning to drop interest rates to jump start the economy along with President Reagan’s tax cuts. What a different world we have today.

We have seen a dramatic increase in activity in the past two weeks, and am happy to share one additional closing and three purchases with you.

On 7/2/2010 KNR 2 closed escrow, yielding a profit of over $20,000 (purchase price was $199,000).  KNR 2 was the home on Bissett Way.  We purchased the home on 5/12/2010 and closed escrow on 7/2/2010.  This was our first home to close that was not an all cash deal, and even with a lender that seemed to take forever, the entire hold time was only 51 days!  The IRR for KNR 2 is north of 80% and the return on investment is in the 11% range (both are in our target zone). 

Now, for the three additional purchases:

On 6/25/2010, we purchased KNR 6, located on Tarpan Ct, in Elk Grove.  Tarpan was purchased for $210,000 and is already on the market, listed today, for $269,900.  We anticipate another quick hold on this home, as it is in a great neighborhood that has seen recent activity. 

On 7/6/2010 (Tuesday), we purchased a KNR 8, which is located also in Elk Grove, on Modena Way.  This 2000 square foot home was built in 2005 and is a 4 bedroom 3 bath house that is vacant and will be put on the market as early as tomorrow!  Modena was purchased for $192,500.  We anticipate putting it on the market for $255,000, and I will keep you posted as this becomes a reality.  I will also post a blog entry with a picture when I receive one.

Lastly, we were successful yet again today, purchasing KNR 7.  Burrowing Owl Way is also in Elk Grove.  This home is just under 3000 square feet, is a 4 bedroom 3 bath house with a pool.  Burrowing Owl Way was purchased for $257,000.

To date, we have purchased 8 homes.  Of the 8 homes, three have already closed escrow and a fourth is due to close escrow next week.  The fifth home (KNR 5) is in a counter offer situation and we are hopeful that we will be putting it in escrow shortly.  One home (KNR 6) is on the market as of today, and the two homes we purchased this week will be on the market within 7 days.  The three homes have generated gross profits over $91,000.

You may notice that the past three homes have been purchased in Elk Grove.  Elk Grove is a newer, upscale community south of downtown Sacramento.  KNR 1 was in Elk Grove, but KNR 2-5 were all in Sacramento.  This makes 4 homes purchased in Elk Grove and 4 in Sacramento.  One benefit of Elk Grove is a lower real property transfer tax!

Pictures to follow!

We have closed escrow and received funds in Klaraos Neighborhood Redevelopment 4.  KNR 4 purchased a home on Cornejo Way in Sacramento on May 25th.  The large home needed a decent amount of clean up to become move in ready, was done under budget, and the home was listed just 9 days after purchase.  After just four days on the market, we opened escrow for the sale of Cornejo Way, with an all cash, quick close. 

The funds have hit the account today, June 22, for a total hold time of 28 days!  The purchase price was $237,000, and after all construction and closing costs, a little more than $259,000 was returned; representing an IRR north of 115%, yet another successful purchase and sale for Klaraos Neighborhood Redevelopment.

If you have any questions regarding KNR, please give us a call, and we will gladly share information on this investment opportunity.

Very Best,

Geoff Zahler

P.S. Here is a snapshot of the home on the day it went up for sale.