If you're like me some examples with numbers will help to illustrate the point.Lets say you do a HELOC or cash out refi on your house and get $70,000 dollars cash to invest.  

Brian:I do like the idea of providing transactional funding and have done it one occasion - the recipient was not a wholesaler, but a rehabber who got over ambitious on his commitments and could not swing everything in his pipeline ... but keeping his reputation untarnished was worth the cost of bridge funding.The issue I see is that I would not extend funds to most of the wholesalers with whom I have had contact for many of the reasons illustrated above: they simply do not have their act together sufficiently to give confidence the monies would be repaid.  

(whole integer increase every year is unlikely but illustrative of the analysis)First, by the example cited, the 5th year also becomes the max rate, so if we hold that long, we will know the highest rate forever.

I saw a few illustrated rehabs on this forum or note purchase.

You illustrate the many hurdles that go into doing something like this, adding to the list of reasons why there are not many companies doing it in the first place.

As he so beautifully illustrated, the low cap rate in areas like San Diego go a very long way in helping to force appreciation.I saw another poster above comment something along the lines of "Why would you put $420K down for $9,600/year?" 

To further illustrate the point and how I'd advise managing it, let's look at another common mistake I hear all the time here on BP.

I have about 14 years before I am forced to make withdraws.For my illustration here I would assume to purchase 4 single family homes ~$100k each.  

If they will do a loan with less than 1, the pricing takes a hit.I've included an example below to help illustrate this.So different lenders have different rates (which do vary even for DSCR loans) but these are factors they all consider.See example below:DSCR < 1Principal + Interest = $1,700Taxes = $350, Insurance = $100, Association Dues = $50Total PITIA = $2200Rent = $2000DSCR = Rent/PITIA = 2000/2200 = 0.91Since the DSCR is 0.91, we know the expenses are greater than the income of the property.DSCR >1Principal + Interest = $1,500Taxes = $250, Insurance = $100, Association Dues = $25Total PITIA = $1875 Rent = $2300DSCR = Rent/PITIA = 2300/1875 = 1.23This property cash flows. 

I would have thrown up the white flag of surrender years ago without more of a goal than making money.That said, like @James Wise has pointed out so illustratively twice, I no longer 'rescue' single mom's from the half-way house.