I am private lender on a rehab property that is not selling.

[David Espana]

I have loaned (2nd position) to a flipper using my SDIRA. A hard money lender was utilized for the 1st position loan. The property was purchased around mid-August 2018 and placed on the market in November 2018. It is beautifully remodeled, however, as of July 1, 2019, it still sits unsold.

The price has been dropped about $21,000 and is probably priced a little more than break-even (margins reduced by the interest paid to the 1st position lender the past nearly 11 months). The flipper only has $5,000 invested in the property. Any further reduction in the asking price and I will start losing my investment.

I am seeking advice on what should do next. The maturity date on my SDIRA loan has pasted (I have set an April 30, 2019 maturity date). The 1st position loan is due in one year. My private loan is secured by a promissory note and recorded Deed of Trust.

Your feedback is greatly appreciated. 

[Don Konipol]

@David Espana

I don’t see what advantage foreclosing would be, but the legal fees required would only add to any loss. Assuming that the owner is doing everything he can to sell the property, their would be not advantage to foreclosing.

If you were to obtain ownership of the property with the intent to keep as a rental, you would need to refinance.

Quite frankly, you invested in the very riskiest part of the deal. You provided the equity portion (on a debt basis) of a non stabilized property with the hurdle of having to overcome rehab cost over runs, interest at hard money rates, brokerage fees, sellers closing costs, etc before you get your money back. Often these type of deals go south. Experienced investors would only do this type of investment for a 25% plus annualized return, with the understanding that capital is at risk. Most deals wouldn’t be able to pay the first lien at hard money rates, plus the equity portion at investor rates, and still be profitable. In fact, the most successful fix in flippers utilize only their own capital; the less successful utilize hard money with their own capital as equity; by the time you get to the guys that need 97% financing your dealing with questionable flippers without a verifiable track record, so a loss is always a possibility.