So you want to be a Credit Investor!
I wrote this years ago
thought I would dust it off!
To straw buy or not to straw buy? In the course of buying and selling real estate, partnerships are formed, alliances so to speak. In the course of these partnerships , investors often obtain a mortgage in one persons name or the other. We have all done this. My grandmother and my mother were property owner's in Lee County. This is a means to and end. I know people in the club , who have a syndicate of 5 or so investors , who flip houses back and forth for different reasons, I.E. to get away from the hard money loan once the rehab is done. If you are a new investor and you are approached to do this you should ask your self some questions:- Am I a partner or just the borrower, You have most of the risk , you should get some of the reward.
- The person who wants me to do this, why can’t they get a mortgage in there name? If its due to too many properties in their name already, okay, I understand. If its due to the fact that, they do not like to pay there own personal bills and have bad credit then think about this, if they have so little regard for their own credit how much will the value yours?Do they have bad credit due to something beyond there control? If they have bad credit are they trying to fix it? Ask to see their credit report and balance sheet. Listen to this, in real estate there is a lot of money. Where there is money, there is greed. Do not rely on the fact that they show you a check or some piece of paper showing that they are successful. Anyone with a scanner can do that. I am not saying look for the monster under the bed every time, just be diligent and see who you are getting involved with.
- What is my recourse and protection? Is the property staying titled into my name or a land trust I have no control over? Who sends the check to the bank? If it’s the tenant, ask the investors from Alterative Home Financing how well that worked. Peter Kollar has spoken to a lady who went into a deal like this and now is getting foreclosure papers.
- Does this person have the means to carry the payment? If the investor is robbing Peter to pay Paul, try not to become the next guy in the pyramid.
- Numbers, numbers, numbers. These are the deal, not salesmanship. A 95% loan on an investment property that is intended to be a flip makes no sense, unless the buy is strong. If the numbers are not there then run.
Comments (2)
All great points. For me #3 drives it home. Those that have no recourse when getting involved in transactions are just asking for trouble, and those that offer returns without recourse are asking for trouble from the SEC
Kevin Kaczmarek, over 14 years ago
good advice, new comers may be too eager to do deals and get taken.
Don Konipol, over 14 years ago