Advice needed on potential PML

[Joe Schaak]

Hoping to get some feedback about a potential lending opportunity:

$130k used as downpayment and rehab funds

4pts and 15% interest only for 8 months

2nd lien position with signed personal guarantee

30% of profit on sale of the property - roughly $30k

The rehabber has done 20+ projects and has a good reputation. He's a good guy and I believe in his ability. That said, you never know what can happen. 

Thoughts?

[Jay Hinrichs]

@Wayne Brooks  what I see happening in the industry is there is a new no money down play being taught and that is called GAP funding.  find a gap funder

which is just another word for equity partner or second position lender wereby the sponsor or borrower is putting no personal money down.  So its all OPM and their skill or hopefully they are skilled

so I think what @Joe Schaak is saying is the 130k would be the down stroke the HML wants and the rehab funds.

If the deal pans out correctly this is a very nice financial play for Joe.  can't get much better unless you do it yourself.

@Joe Schaak I have quite a bit of experience in the HML space. and I used to require PG's on all my loans .. I have come to the conclusion 30 years later that the PG is well intended and it shows some character that the borrower is willing to sign one. .But its pretty much useless in practice.

If the deal has gone so far south that you have to sue him on the PG.. your in a world of hurt.. most guys are then cratering totally and you will spend far to much in attorney's fee's trying to get the judgment and then even more trying to collect.. the borrower will start putting assets in every relatives name hide accounts etc.  So in my personal opinion you can get one for a feel good doc but its not something to hang your hat on ..  Like in our Cirrus airplane we have a get out of jail free card.. Called the all plane parachute  but it actually works  LOL...

Good luck on it... if those numbers hold true as I state its a stellar deal.

As long as you live right there and can monitor it.

Also you need to have the wherewithal to pay off the first if it goes wonky. there was a thread last week on a lady in Alameda CA who did a small second 50k behind a very large HML 500k. and the guy went dark and she can't cure the first I suspect she will lose all her money.

I do these occasionally and the kind of return your looking for is exactly what I would be looking for you are taking on a huge risk so the reward needs to be huge as well.

Another last point when I do these I have a sit down with the HML and tell them exactly what we are doing and if for some reason my sponsor or the borrower goes off the rails I want to walk in and work out a deal and take over the project.. I would never do this behind a lender you can't talk to and have an understanding with...

hope that helps and is fair and balanced response.