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Updated over 8 years ago, 03/22/2016
question about private lending
Hi guys!
I have an investment opportunity that I would appreciate your expert advice on. Sounds like a no brainer, which is why I am extra questioning it and making sure I don't miss anything that could screw me!
A friend of mine who I invest through has another group of investors that needs $20,000 for a reno project on one of their rental properties. They will be paying me 10% on that 20,000 for up to 3 months. They are putting two of their properties up as collateral. If they don't pay me back in full with the 10% in the 3 month contracted agreement, Those houses would be mine, each valuing between 25,000 - 30,000.Deal or no deal?
Thanks for any advice or input in advance
Rocky
Rocky,
I would say this seems like a great deal for you and a WIN for them. This would be a "gut" decision. I would say YES go for it because they're putting up two properties that have value. Now you become the back. Do you have any RE Attorney friends that you could consult? Just to cover yourself? In the short-term this could be a good relationship building opportunity for you and them. Let me know how it turns out.
Thank you Jamie!
Yes my lawyer is a RE lawyer. I actually told my friend after he drew up the contract that I would feel more comfortable if my lawyer would look over it. Also, I want to do my own search on the actual value of the 2 homes just to make sure. I thought it was a good deal, but I always make sure I don't rush into something that sounds too good to be true, just to be safe!
@Rocky Verteramo is that 10% of 30k (I.e. 3k) or 10% annualized (I.e. $750)? Big difference.
sorry I meant 20k not 30k
Hello Julian, It's 10% of the 20k, 2,000.00/ month interest for 3 months.
Julian, I also saw on your profile you are investing while a partner does the managing. I have started the same deal with a friend of mine. We split profits 60/40, 60 going to me. Is that how you have it set up?
thanks
This size loan is more dependent on your trust of the borrower than the cross-collateral for three properties. I had a deal that I took 10 properties as cross-collateral and found out later that ALL of the properties had major issues and I couldn't collect on any of them after the borrower defaulted. Even though I had placed liens on those properties, other investors also had liens placed afterward. Plus, a $20,000 investment is fairly small, so if you didn't trust the borrower and things went bad, you would spend more than $20,000 trying to get your money back. I'm not saying that it's not a great investment, just beware that you are not going down this road with someone that hasn't performed for you, or others you know, in the past.
@Rocky Verteramo Sounds like a great deal, but like Darren mentioned they important part here is the properties they are putting up. Worst case scenario they are trying to drop two properties they don't want to deal with so don't care about repaying according to the agreement terms. Now, I doubt that's the case because it would be too obvious by doing some basic research on the two properties. And like I said, worst case. So, having a lawyer-drawn contract is a good move and researching those properties is a good move. Hope it all works out for you whichever way go!
Darren and Brian, thanks for the advice! I will cover the bases you wrote about! I've since spoken with the people I would he lending to and said the money is there's if my lawyer draws up the contract and I am able to find out from other sources if these homes are of value they say or like you said Brian, ones they don't care to get rid of!
Rocky Verteramo , as others have said, the expenses to recover a $20k loan will mean you will go in a loss of the deal goes sour.
Consider this a friends & family type loan and do it only if you are comfortable.
The 10% Apr on $20k for 3 months works out to $500.
Hey guys,
Update on the above deal. The 10% / month is not annual, it is 2,000 for each of the three months of the loan, equalling 6,000 in total for the life of the loan.
The 2 homes at value of at least 20,000 / home will actually be quit claimed to me, so they will be in my name before the money is handed over.The borrower has 7 homes to sell in a bundle, 4 homes are siting finished and ready to sell, and the 20,000 that I would be loaning is to get the other 3 fixed so the sale can happen. They feel the risk to put up 2 of their homes is better than having to wait to sell all the homes. Should I feel more comfortable now that the two homes will be quit claimed to me in my name before the money is given, as long as I know the value is the 2 homes?
Thanks for the advice!