I am trying to come up with a short list of benefits or actual reason being of a second position deed of trust. We will be investing with private money loans and gap financing partners, so we will need to provide our gap partners with a second position lien, but for pitch purposes, I would like to know exactly what is the benefit for them or the peace of mind of that? Because in case something goes wrong, doesn't the 1st position lien (Private Lender), have all the control on the property?
Thank you in advance and excuse my ignorance!
The only benefit to being in 2nd position is you have a lien and you aren't in 3rd.
If "something goes wrong" the second position lender is very, very likely to suffer a 100% loss. The benefit of making a second position loan is the very high interest rate. The downsides are multitude.
gap funding from the funders position is highly risky and gap funder should receive 50% of the profit for taking the risk any gap funder that does it for a simple interest rate is not educated on the risks.
@Jay Hinrichs I think you'll agree that OP would find this recent thread an interesting on-topic read: https://www.biggerpockets.com/forums/49/topics/520...
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