Gap funding? Does it work?

[Aaron H.]

Hello,

I have recently rekindled an old friendship with a friend whom I happened to meet at a local coffee shop one day. We started talking about our careers and he told me that he started a real estate business and was helping investors by pooling their money together to create capital for his business and was rehabbing homes and offering a lower rate to prospective buyers.

This peaked my interest and I told him I had a savings of about $50k that I would like to invest with. He told me I could earn $2,500/month and within 65 days I would have $10-20k from homebuyers making a down payment and their monthly mortgage. I was skeptical at first, as it sounded too good to be true, so I asked him to come up with a proposal so he drafted a presentation and walked me through somewhat of the process.

He told me I would basically be owning liens on the properties (5 to be exact -- at $10k each) and that when each tenant makes their payments it would go directly to me, thus equalling $2,500/month ($500/month x 5 properties).

Now, this still sounds a bit odd to me. I have little to no experience with investing or real estate and although I consider him a good friend that I've known throughout the years, my gut tells me that something still isn't right about this deal.

Please help. Any information or suggestions with this matter would be greatly appreciated!

Aaron