Real Estate Assets, Net

12 Months Ended

Dec. 31, 2019

The Company acquires REO either through direct purchases of properties for its rental portfolio or through conversions of mortgage loans in its portfolio such as when a mortgage loan is foreclosed upon and the Company takes title to the property on the foreclosure date or the borrower surrenders the deed in lieu of foreclosure.

Rental Property

As of December 31, 2019, the Company owned 10 REO properties with an aggregate carrying value of $1.5 million held for investment as rentals, at which time six were rented. Two properties were acquired as an RPL but transitioned to foreclosure prior to boarding by the Servicer, one was acquired through foreclosure and six were transferred from Property held-for-sale, where all six were acquired through foreclosures. The remaining rental property was directly purchased. As of December 31, 2018, the Company owned 21 REO properties with a carrying value of $17.6 million held for use as rentals, at which time 16 were rented. One property was acquired as an RPL but transitioned to foreclosure prior to boarding by the Servicer, one was acquired through foreclosures, and 12 were transferred from Property held-for-sale, where all 12 were acquired through foreclosures.

Property Held-for-Sale

The Company classifies REO as held-for-sale if the REO is expected to be actively marketed for sale. As of December 31, 2019 and 2018, the Company’s net investments in REO held-for-sale were $13.5 million and $19.4 million, respectively, which include balances of $2.2 million and $2.2 million, respectively, for properties undergoing renovation or which are otherwise in the process of being brought to market. For the years ended December 31, 2019 and 2018, all of the additions to REO held-for-sale were acquired through foreclosure or deed in lieu of foreclosure, and reclassified out of the mortgage loan portfolio.

The following table presents the activity in the Company’s carrying value of property held-for-sale for the years ended December 31, 2019 and 2018 ($ in thousands):


	For the year ended December 31,
	2019				2018
	Count	Amount		Count	Amount
Balance at beginning of year	102	$	19,402	136	$	24,947
Net transfers from mortgage loans	61	12,104		93	15,072
Adjustments to record at lower of cost or fair value	—	(2,104)		—	(2,700)
Disposals	(109)	(16,819)		(127)	(17,251)
Transfer from rental property	6	1,613		6	549
Transfer to rental property	(2)	(414)		(6)	(1,140)
Other	—	(245)		—	(75)
Balance at end of year	58	$	13,537	102	$	19,402

Dispositions

During the years ended December 31, 2019 and 2018 the Company sold 109 and 127 REO properties realizing net gain of approximately $0.6 million and $0.4 million, respectively. These amounts are included in Other income on the Company's consolidated Statements of Income. The Company’s sales of REO properties consist of a transfer of the property that coincides with the receipt of the remuneration. The Company bears no further obligations beyond delivery of the property. Consequently, all revenue from the sales of REO properties is recognized as the time of the sale transaction. The Company recorded a lower of cost or net realizable value adjustments in Real estate operating expense for the years ended December 31, 2019 and 2018 of $2.1 million and $2.7 million, respectively.