Creative Financing: Collateral Assignment of a Hard Money Loan?

[Andrew Bang]

I have an out of the box idea, its an approach to financing flips/rentals while creating passive income. Still working out the details.

Collateral assignment of life insurance has been around for a while, where a bank/lender uses a life insurance policy as collateral for a loan. Lenders love this due to the guarantee of funds if the borrower dies or defaults.

When flipping homes I’m not generating any passive income, all my money is tied up in the properties I’m flipping. If Hard money covers 85% of the purchase/rehab, after 3-4 homes I have over 100k of my own capital tied up in these deals waiting for one to close.

I keep thinking this is a problem, I need to think of it as an opportunity, debt can be an asset. Hard money lenders want to provide fix and flip loans, but they also need investors to invest in their fund to be able to provide the capital for the fix and flip loans. These funds generate passive income for their investors.

This is where a collateral assignment could work. Instead of using my funds to fill the gap for my hard money loans, what if I took that same 100k and invested it in their fund, then used that investment as a collateral assignment to fill the gap.

I would be earning steady passive income as one of their investors, meanwhile they are providing me 100% financing on my flips (purchase and rehab).

*** Taking it to the next level: What if I used my collateral assignment to JV deals. An investment friend has a great deal but needs gap funding, I guarantee his loan with my collateral, he receives 100% financing, I receive a portion of his profit when he sells. I'm now receiving three incomes from my one investment.

• 1. Investment in fund (11-12.5% annual return) (typical return from a well-run fund)
• 2. My own flips 100% of profit
• 3. JV profit share 10%-50% of profit, depending on agreement

***Taking it to one more level: I don't flip any properties myself anymore, I'd rather play golf. Instead I max out my collateral just being a JV on multiple properties. Collateral isn't based on one-to-one, I can use it four to six times the amount I initially invested.

• 1. Investment in fund (11-12.5% annual return).
• 2. JV on 4-6 deals, share of profit in 4-6 deals.

Thoughts?

If I found a fund that would do this, would you be interested? Contact me, let’s have lunch or play golf. I split my time between Arizona and Texas.