Thanks for the assist Jon.
J Scott....Thanks very much for your feedback. I never look at a fellow colleague's feedback and critiques as negative. I always value constructive criticism and see it as a means to learn more from a professional cadre of businessmen and women (especially from BP).
Let me do my best to answer your statements in my response. Some initial things to cover: 1) We go through a very detailed due diligence process with every business/investor we have interest in working with. We do our homework by looking at comps, contacting local agents, and doing an extensive review of the market the business is located and working in. I'm sure most HMLs and private funding business do this as well. 2) We tend to work with more experienced business and investors who are established. Not to say we won't work with someone new to Real Estate, but we usually go with the experience.
With our model, we won't provide more than 70% of the LTV/ARV to a business requesting funds for the purchase and/or rehab of their property. We also require 80% of the LTV/ARV to be equal to or greater than what we receive at the closing (our investment + fee). So if a property has a 300K ARV, we won't provide more than 210K (70%)....but in this instance our maximum investment would be 200K since 80% of the ARV is 240K and this is what we'd get back on a 6 month term (20% fee)....ARV = Our Investment + Fee. If we have to call in the lien (at the 12 month point) and take ownership of the home, we know we can sell it at 80% of its value and get our investment and fee while having the house on the market in hopefully a short period of time. The risk here is if the market takes a significant drop in the 12 month period, but that is a calculated risk we would be willing to accept if the deal made sense. There must be a good margin/cushion in the deal for it to make sense when working with us and we ensure we work with our Partnered Businesses to ensure they are aware of this before they get funded. Our collateral (in my estimation) protects us enough and gives our partnered businesses the time and frees them of the stress to have to make payments on a monthly basis. The first deal "extra collateral" also protects us as we have a little more protection on top of the standard collateral.
We don't expect to get into any deals that will lose us or our investor's money. From your experience and from what I stated above, if you see a hole in our model I would love to talk more with you about it. Thanks again.
