This Blows My Mind For Those Acting A A Lender
Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes
7e investments53 Reviews
This Blows My Mind For Those Acting A A Lender
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Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
2yQuote from @Chris Seveney:
Ok so this is something that honestly just completely blows my mind and I’m curious if I am the only one that is completely nuts or do others agree with me?
I continue to see more and more investors, either doing private, lending or investing in debt, not take into consideration the risk.
What do I mean by that? I am seeing people investing in opportunities where they are in a second or even unsecured position and are targeted to receive a net 1-2% above a 1st position lien.
For example,:
Option #1:
You receive a $50k first position lien $100k property - you are targeting to get a 9% return.
Option #2:
You are in 2nd position on the above deal and are $50k so 100% ltv and you are targeting to get 10%
Option #3:
you give someone $50k and it unsecured for them to go out and buy an asset and you are targeting to get 13%.
I have literally seen several people over the last few days say they’re going to go option three because it provides the highest return. So curious if people think I’m nuts? We view the risk of a 2nd and would add 3-5% higher (min) for the risk and unsecured we would not even touch, but I would put it at 2x a second.
Curious to hear how others evaluate risk?
Also, if you know somebody who selected option number three and lost 100% of their money, would you feel bad for them?
Is this any different than similar investors chasing yield in Cleveland, Kansas City or Baltimore over investing in Boston, DC or LA?
I said it 10 years ago when I was on the BP podcast, and it remains true today....the biggest mistake investors make is an inability to properly judge risk.
District Invest Group546 Reviews
40 Replies
- Flipper/Rehabber · CA · Member since 2023 · 1k+ posts · 1k+ votes2y
Quote from @Chris Seveney:
Ok so this is something that honestly just completely blows my mind and I’m curious if I am the only one that is completely nuts or do others agree with me?
I continue to see more and more investors, either doing private, lending or investing in debt, not take into consideration the risk.
What do I mean by that? I am seeing people investing in opportunities where they are in a second or even unsecured position and are targeted to receive a net 1-2% above a 1st position lien.
For example,:
Option #1:
You receive a $50k first position lien $100k property - you are targeting to get a 9% return.
Option #2:
You are in 2nd position on the above deal and are $50k so 100% ltv and you are targeting to get 10%
Option #3:
you give someone $50k and it unsecured for them to go out and buy an asset and you are targeting to get 13%.
I have literally seen several people over the last few days say they’re going to go option three because it provides the highest return. So curious if people think I’m nuts? We view the risk of a 2nd and would add 3-5% higher (min) for the risk and unsecured we would not even touch, but I would put it at 2x a second.
Curious to hear how others evaluate risk?
Also, if you know somebody who selected option number three and lost 100% of their money, would you feel bad for them?
I've seen friends do business with friends, no contract, no position just a handshake and lose $200k. No you're not nuts lol.
- Investor · Baltimore, MD · Member since 2008 · 17k+ posts · 13k+ votes2y
@Chris Seveney no, you are not crazy. You understand risk. Very few readers here have a clue about the risks they are taking. When you read things by Warren Buffett or Sam Zell, the thing they talk about most is risk. You almost never hear about it here on BP.
- 2yMichael SmytheBusiness MemberReal Estate Agent · Metro Detroit · Member since 2023 · 4k+ posts · 3k+ votes
@Chris Seveney fools and their money are soon parted!
We see similar issues with fools (won't call them investors) buying properties with little to no REAL research.
They buy Class C & D properties expecting Class A results - and it's everyone else's fault when it doesn't work out.
Logical Property Management4.9445 Reviews - Lender · Los Angeles, CA · Member since 2009 · 1k+ posts · 2k+ votes2y
I agree with your premise, but I completely disagree with your examples, @Chris Seveney.
Lately, there’s been an epidemic on this board of potential California lenders with amounts in the $100k ballpark who want to get into lending locally. Mind you, the median price of a home sold in Los Angeles lately is about $950k. I universally recommend they look at first-position fractional loans, which are legal here, but I know that no one listens. I guess these are not as sexy as owning an entire second-position loan on your own. And what could be more exciting than when it’s all the money you have?
The first rule of gambling is that no single loss can wipe you out. Yet lending all your money in second position is like buying a ticking time bomb without knowing when it will go off.
Where I disagree with you is that adding “3-5% higher (min)” to a 13% second position loan somehow mitigates the risk (and I know your numbers were made up for illustration). It only does this if you are doing many loans and can stand getting wiped out on occasion. Here, the extra percentages make up for the occasional loss, time value, legal, headaches, etc.
If you’ve done enough loans, you know your default rate and should be able to calculate the required percent increase. If you are going for broke with an unsophisticated second, you could arbitrarily charge an additional 5%, 50%, or 500%. But if the loan goes bad and you get wiped out, the additional interest rate was irrelevant. Thus, adding any amount of interest on a second is irrelevant if you lose everything.
We know a few who specialize in seconds and consistently lend behind us. They have the thick skin and wherewithal to put up with this. No one has any business lending all their money at any interest rate if the loan could wipe them out.
“Also, if you know somebody who selected option number three and lost 100% of their money, would you feel bad for them?”
Coincidently, yesterday we got a call from a first-position borrower informing us he’s fallen on some hard times and will have to walk away from the house. Not a problem financially because there’s decent equity left in the deal and we’ll be ok. We even have a buyer.
This was a first for us and honestly, because we get to know our borrowers well, we got choked up over his personal mess. Then, just earlier today, we had a conversation with his very unsophisticated second position lender, who we don’t know, and who made a $110k second to him behind us. We had to tell him we could only give him $30k or we could foreclose (though we were much more delicate about it). We learned during the conversation that this was his entire life savings. No, it wasn’t BS.
If it were Kiavi, we couldn’t have cared less. But even talking to a stranger about not being able to help him recover his life savings was among the worst conversations in our lives. So yes, we felt bad. Very bad.
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Quote from @Jeff S.:
I agree with your premise, but I completely disagree with your examples, @Chris Seveney.
Lately, there’s been an epidemic on this board of potential California lenders with amounts in the $100k ballpark who want to get into lending locally. Mind you, the median price of a home sold in Los Angeles lately is about $950k. I universally recommend they look at first-position fractional loans, which are legal here, but I know that no one listens. I guess these are not as sexy as owning an entire second-position loan on your own. And what could be more exciting than when it’s all the money you have?
The first rule of gambling is that no single loss can wipe you out. Yet lending all your money in second position is like buying a ticking time bomb without knowing when it will go off.
Where I disagree with you is that adding “3-5% higher (min)” to a 13% second position loan somehow mitigates the risk (and I know your numbers were made up for illustration). It only does this if you are doing many loans and can stand getting wiped out on occasion. Here, the extra percentages make up for the occasional loss, time value, legal, headaches, etc.
If you’ve done enough loans, you know your default rate and should be able to calculate the required percent increase. If you are going for broke with an unsophisticated second, you could arbitrarily charge an additional 5%, 50%, or 500%. But if the loan goes bad and you get wiped out, the additional interest rate was irrelevant. Thus, adding any amount of interest on a second is irrelevant if you lose everything.
We know a few who specialize in seconds and consistently lend behind us. They have the thick skin and wherewithal to put up with this. No one has any business lending all their money at any interest rate if the loan could wipe them out.
“Also, if you know somebody who selected option number three and lost 100% of their money, would you feel bad for them?”
Coincidently, yesterday we got a call from a first-position borrower informing us he’s fallen on some hard times and will have to walk away from the house. Not a problem financially because there’s decent equity left in the deal and we’ll be ok. We even have a buyer.
This was a first for us and honestly, because we get to know our borrowers well, we got choked up over his personal mess. Then, just earlier today, we had a conversation with his very unsophisticated second position lender, who we don’t know, and who made a $110k second to him behind us. We had to tell him we could only give him $30k or we could foreclose (though we were much more delicate about it). We learned during the conversation that this was his entire life savings. No, it wasn’t BS.
If it were Kiavi, we couldn’t have cared less. But even talking to a stranger about not being able to help him recover his life savings was among the worst conversations in our lives. So yes, we felt bad. Very bad.
Jeff
You may have misinterpreted my message, as I agree with you regarding 2nd and unsecured. People literally are jumping on those deals I mention in #2 and #3 chasing returns.
Where I mention the 3-5% delta on a second is that is what it will cost you from a traditional bank (for example a HELOC or 2nd mortgage). I am not saying I agree with that percentage as it depends on the underwriting of the deal. We have done 600+ loans and like you mention know the numbers.
Regarding people getting wiped out, every person has a story. Some I can sympathize with and others I do not. Those that are "chasing" returns and are like: Well John says he will pay 15% but Jane only pays 10% I will absolutely go with John - those people I have ZERO sympathy for, especially when they are investing in unsecured loans.
7e investments53 Reviews - Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Ned Carey:
@Chris Seveney no, you are not crazy. You understand risk. Very few readers here have a clue about the risks they are taking. When you read things by Warren Buffett or Sam Zell, the thing they talk about most is risk. You almost never hear about it here on BP.
I am about to say this precisely this word.
Our friend here Chris is the best in risk management. - 2ySean O'KeefePro MemberCPA | Accepting new clients | 50 States · Member since 2022 · 1k+ posts · 870 votes
Following this - I'm based in California
- Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
Quote from @Carlos Ptriawan:
Quote from @Ned Carey:
@Chris Seveney no, you are not crazy. You understand risk. Very few readers here have a clue about the risks they are taking. When you read things by Warren Buffett or Sam Zell, the thing they talk about most is risk. You almost never hear about it here on BP.
I am about to say this precisely this word.
Our friend here Chris is the best in risk management.Not the best but understand it through experience. I was working for a GC from 1997-2012 and during that time I have seen A LOT of developers go under water and out of business and lose everything. Why, because they thought they were smarter than everyone and were highly levered.
When I worked for a local developer to me, we had this HUGE risk management spreadsheet we had to go through outlining every known risk on the project, who was in charge of it and what we were doing to remediate it. They wanted to make money, but they were focused on protecting downside risk. Think of it as a football game, you need to play offense and defense. Unfortunately, investors typically only look at offense as that is where the points are typically scored and how well you mitigate risk is tougher to grade - until you lose it all.
Also remember, past performance is not indicative of future success, especially when you are playing with fire in anything that is highly levered or unsecured. There is a reason credit card rates are 20-30%...
7e investments53 Reviews - 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
They just see the 13% and think--excellent--- lock it in. There's always fools in this, this is no different.
I "lost" out private lending to someone for a full re-do of a house, I was offering 9.5% first and only position. The buyer took 10.5% total unsecured loan. Who the hell gave that? I am okay with losing, but sheesh I didn't lose ---that unsecured loan guy did.
- Flipper/Rehabber · CA · Member since 2023 · 1k+ posts · 1k+ votes2y
Quote from @Account Closed:
Your comment: "Quote from @Chris Seveney:
Ok so this is something that honestly just completely blows my mind and I’m curious if I am the only one that is completely nuts or do others agree with me?
I continue to see more and more investors, either doing private, lending or investing in debt, not take into consideration the risk.
What do I mean by that? I am seeing people investing in opportunities where they are in a second or even unsecured position and are targeted to receive a net 1-2% above a 1st position lien.
For example,:
Option #1:
You receive a $50k first position lien $100k property - you are targeting to get a 9% return.
Option #2:
You are in 2nd position on the above deal and are $50k so 100% ltv and you are targeting to get 10%
Option #3:
you give someone $50k and it unsecured for them to go out and buy an asset and you are targeting to get 13%.
I have literally seen several people over the last few days say they’re going to go option three because it provides the highest return. So curious if people think I’m nuts? We view the risk of a 2nd and would add 3-5% higher (min) for the risk and unsecured we would not even touch, but I would put it at 2x a second.
Curious to hear how others evaluate risk?
Also, if you know somebody who selected option number three and lost 100% of their money, would you feel bad for them?
Option #3: "you give someone $50k and it unsecured for them to go out and buy an asset and you are targeting to get 13%."
What's even more befuddling to me is a popular "guru" who has a dedicated thread on BP of worshippers, is telling people with as little as a $1,000 to $5,000 to their name, that it is profitable lending in 3rd position on a property he is paying full price for on the MLS.
There is no equity and he is borrowing money from these folks. I don't believe they use any security instrument. How can you pay for title and escrow and so on when you're lending only $5,000? These "gator lenders" as he calls them, are over leveraging the property being bought "Subject To". Amazing.
Many years ago I remember reading some promoting gap lending, the difference between what an HML would cover(1st position) and all in cost. That's 2nd position right?
Is that what a bridge loan is?
They also promoted EMD lending, is that what gator lending is?
This was for flipping
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Chris Seveney:
Quote from @Jeff S.:
I agree with your premise, but I completely disagree with your examples, @Chris Seveney.
Lately, there’s been an epidemic on this board of potential California lenders with amounts in the $100k ballpark who want to get into lending locally. Mind you, the median price of a home sold in Los Angeles lately is about $950k. I universally recommend they look at first-position fractional loans, which are legal here, but I know that no one listens. I guess these are not as sexy as owning an entire second-position loan on your own. And what could be more exciting than when it’s all the money you have?
The first rule of gambling is that no single loss can wipe you out. Yet lending all your money in second position is like buying a ticking time bomb without knowing when it will go off.
Where I disagree with you is that adding “3-5% higher (min)” to a 13% second position loan somehow mitigates the risk (and I know your numbers were made up for illustration). It only does this if you are doing many loans and can stand getting wiped out on occasion. Here, the extra percentages make up for the occasional loss, time value, legal, headaches, etc.
If you’ve done enough loans, you know your default rate and should be able to calculate the required percent increase. If you are going for broke with an unsophisticated second, you could arbitrarily charge an additional 5%, 50%, or 500%. But if the loan goes bad and you get wiped out, the additional interest rate was irrelevant. Thus, adding any amount of interest on a second is irrelevant if you lose everything.
We know a few who specialize in seconds and consistently lend behind us. They have the thick skin and wherewithal to put up with this. No one has any business lending all their money at any interest rate if the loan could wipe them out.
“Also, if you know somebody who selected option number three and lost 100% of their money, would you feel bad for them?”
Coincidently, yesterday we got a call from a first-position borrower informing us he’s fallen on some hard times and will have to walk away from the house. Not a problem financially because there’s decent equity left in the deal and we’ll be ok. We even have a buyer.
This was a first for us and honestly, because we get to know our borrowers well, we got choked up over his personal mess. Then, just earlier today, we had a conversation with his very unsophisticated second position lender, who we don’t know, and who made a $110k second to him behind us. We had to tell him we could only give him $30k or we could foreclose (though we were much more delicate about it). We learned during the conversation that this was his entire life savings. No, it wasn’t BS.
If it were Kiavi, we couldn’t have cared less. But even talking to a stranger about not being able to help him recover his life savings was among the worst conversations in our lives. So yes, we felt bad. Very bad.
Jeff
You may have misinterpreted my message, as I agree with you regarding 2nd and unsecured. People literally are jumping on those deals I mention in #2 and #3 chasing returns.
Where I mention the 3-5% delta on a second is that is what it will cost you from a traditional bank (for example a HELOC or 2nd mortgage). I am not saying I agree with that percentage as it depends on the underwriting of the deal. We have done 600+ loans and like you mention know the numbers.
Regarding people getting wiped out, every person has a story. Some I can sympathize with and others I do not. Those that are "chasing" returns and are like: Well John says he will pay 15% but Jane only pays 10% I will absolutely go with John - those people I have ZERO sympathy for, especially when they are investing in unsecured loans.
I am not sure its the rate of return that entices them all the time, I generally think they simply do not understand the risks and or do not have deal flow to find the safer 1st position loans given the smaller amounts of money that they have to invest.. So these Gap funding Second loans or unsecured loans are the only thing they are finding ( basically at the local RIA's ) . So a general lack of knowledge about the business and access to deals. Fractional First position lending in CA. Done through a very good Broker or CSF or MLO is one of the absolute safest place for the 50k to 100k investor Full stop .. IMHO.. I dont personally do them any more. But in the day I did 100s of them.. U can still have a hiccup of course but generally speaking far safer than any junior or unsecured As you have a specific ownership interest that cant be deluded and is first priority in any BK
- Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes2y
Quote from @Chris Seveney:
Ok so this is something that honestly just completely blows my mind and I’m curious if I am the only one that is completely nuts or do others agree with me?
I continue to see more and more investors, either doing private, lending or investing in debt, not take into consideration the risk.
What do I mean by that? I am seeing people investing in opportunities where they are in a second or even unsecured position and are targeted to receive a net 1-2% above a 1st position lien.
For example,:
Option #1:
You receive a $50k first position lien $100k property - you are targeting to get a 9% return.
Option #2:
You are in 2nd position on the above deal and are $50k so 100% ltv and you are targeting to get 10%
Option #3:
you give someone $50k and it unsecured for them to go out and buy an asset and you are targeting to get 13%.
I have literally seen several people over the last few days say they’re going to go option three because it provides the highest return. So curious if people think I’m nuts? We view the risk of a 2nd and would add 3-5% higher (min) for the risk and unsecured we would not even touch, but I would put it at 2x a second.
Curious to hear how others evaluate risk?
Also, if you know somebody who selected option number three and lost 100% of their money, would you feel bad for them?
Is this any different than similar investors chasing yield in Cleveland, Kansas City or Baltimore over investing in Boston, DC or LA?
I said it 10 years ago when I was on the BP podcast, and it remains true today....the biggest mistake investors make is an inability to properly judge risk.
District Invest Group546 Reviews - Investor · VA · Member since 2015 · 21k+ posts · 19k+ votes2y
@Russell Brazil
Very true
I was curious so I used a property we took back outside of Pittsburgh as it was not a bad house but not a great area and turned it into a rental. I was into it for $25k and put $15k make it rent ready. Property manager sucked, spent $20k repairing it after tenants destroyed it,
Next thing you know I am in it for $60k it on paper get $1200 in rent but good luck getting people to pay. I said eff this too much work and sold it for $50k. It would never appreciate to where it would be worthwhile and great cash flows on paper but not gonna happen
I would bet this is common in many of these other urban low priced areas. My dc area assets btw are wonderful, cash flowing and appreciate.
7e investments53 Reviews - Investor · Costa Mesa, CA · Member since 2016 · 1k+ posts · 1k+ votes2y
I often sound like a broken record suggesting first trust deeds paying 9% to new investors. In the last few months several of these new investors have bought into the hype of the huge cashflow to be had buying cheap, crappy houses in crappy neighborhoods in the Midwest. Their next post was literally, “How do I evict my non paying tenant?” High paying unsecured loans have the same allure to the “I want to retire at 25 with $20,000 a month and I’m smarter than you old guys” crowd.
- 2yAlex BreshearsBusiness MemberLender · Springfield, MO · Member since 2020 · 351 posts · 504 votes
Sadly yes, I've seen a large uptick in this as "gator lending" takes hold in people's mind as a way to invest in real estate. Many people reach out to me only when it's in trouble, and most of the time they have no asset securing the money - they literally gave someone money with a template promissory not they got off a website.
Most recent example:
Someone lent an investor $25,000 for rehab on a duplex they just bought. The investor promised to return their $25,000 plus an additional $10,000 when they refinanced the property with permanent debt. Five months into the loan, the hard money lender filed a notice of default because the borrower stopped paying their mortgage with that lender. Turns out the borrower did not improvement to the property at all, and the lender has no record or idea where the $25,000 went. They only have a simple promissory note that they likely now have to file a lawsuit to win a judgement, with again no promise of repayment. It was a cost of $0 to enter this transaction their way, and it could have been a cost of $0 to enter it the right way so it was secured (if they even still wanted to do the deal in the first place).
People get lured in by the ultra high returns investors are promising these newbie lenders. The lenders don't know what questions to ask, what due diligence to perform, or assess the risk they are agreeing to. Lastly, they feel paying for advice, consultations, or even paperwork isn't worth it - they see it as a waste of money - but fail to realize the paperwork is the only thing they get in return for their money at a closing.
- Member since 2019 · 7k+ posts · 4k+ votes2y
Quote from @Alex Breshears:
Sadly yes, I've seen a large uptick in this as "gator lending" takes hold in people's mind as a way to invest in real estate. Many people reach out to me only when it's in trouble, and most of the time they have no asset securing the money - they literally gave someone money with a template promissory not they got off a website.
Most recent example:
Someone lent an investor $25,000 for rehab on a duplex they just bought. The investor promised to return their $25,000 plus an additional $10,000 when they refinanced the property with permanent debt. Five months into the loan, the hard money lender filed a notice of default because the borrower stopped paying their mortgage with that lender. Turns out the borrower did not improvement to the property at all, and the lender has no record or idea where the $25,000 went. They only have a simple promissory note that they likely now have to file a lawsuit to win a judgement, with again no promise of repayment. It was a cost of $0 to enter this transaction their way, and it could have been a cost of $0 to enter it the right way so it was secured (if they even still wanted to do the deal in the first place).
People get lured in by the ultra high returns investors are promising these newbie lenders. The lenders don't know what questions to ask, what due diligence to perform, or assess the risk they are agreeing to. Lastly, they feel paying for advice, consultations, or even paperwork isn't worth it - they see it as a waste of money - but fail to realize the paperwork is the only thing they get in return for their money at a closing.
looks like groundfloor investment to me.
- 2yV.G JasonPro MemberInvestor · Member since 2022 · 3k+ posts · 3k+ votes
Quote from @Chris Seveney:
@Russell Brazil
Very true
I was curious so I used a property we took back outside of Pittsburgh as it was not a bad house but not a great area and turned it into a rental. I was into it for $25k and put $15k make it rent ready. Property manager sucked, spent $20k repairing it after tenants destroyed it,
Next thing you know I am in it for $60k it on paper get $1200 in rent but good luck getting people to pay. I said eff this too much work and sold it for $50k. It would never appreciate to where it would be worthwhile and great cash flows on paper but not gonna happen
I would bet this is common in many of these other urban low priced areas. My dc area assets btw are wonderful, cash flowing and appreciate.
In every single physical asset investment I made, the one's that did not cash flow by the end of year 1 or even 2, or 3--were the best winners. This pre-2023(I am not counting 2023 REI in this as it's too early). None of this was REI, some was primary residences(that wouldn't have RTP well on entry but by selling or moving out was very ITM). These were farms, land with timber harvesting, land with some mineral deposits. Yes, even land with royalty I was net negative. It penciled ITM on entry though.
Even in the low rate era that was the case, that's not to say buy OTM... but it's to say buy quality. Chasing year 1 yield and CoC is getting people to buy the bait.But the reason I was posting--I've had 4 deals come to me this morning. These 4 deals, in 3 different markets I have either side of a seller finance & private credit deal trying to get out of this and asking if I able to show something to get this done. Some are willing to eat $150k on the spot. If I'm seeing this looks as a small guy, I don't want to know what happens when the big guys get a look and they see some of this private lending, and some of these seller finance notes are going bust. I can only move on the actual deal, if I choose too. The big boys will move around it before even negotiating.
- 2yHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
We develop or buy self storage. Same risk assessment holds true. Both with small new investors and big players.
Small players just haven’t learned risk assessment. Most of the deals for smaller locations are around 5 to 7% return with payback over 20 to 24 years. We look for 8 to 12 year payback with value add.
Some of the larger firms must have low capital cost and annual growth numbers to hit. Looked at one property around $6mm list. Had extra ground to expand. Longtime location. Only 70% occupancy. Locations and the property itself don’t
Get any better. The property sold at a price assuming 100% occupancy and the potential units were already built. Realize they will come in an increase prices but the deal went real lean in returns.
Risk assessment.
Our 3 bankers all have stress test calculations in our deals. They are a mature lender though. I always supply them with different failure calcs. Instead of 90% occupancy how about 70%. What if $300,000 more cost? What if rental rates are $90 versus $130? What if I die during development?
We set our deals up in 20 to 25 year amorts. With an 8 to 12 year payback. Plenty of cash flow for any errors.
Even our product mix and locations we do risk management up front. Instead of all 20 deep. We do a 30 wide building with movable inner walls. We can have 15/15 on each side or 10/20. Can always move the inner walls.
So if there are mentorship programs hope they are teaching how to calculate failure and also how to mitigate failure.
In your loan scenarios which I don’t do. Personal Guarantee, collateraliz other assets, do military owners. They get tax free BAH money, if they don’t pay you call their commanding officer and they will put the boot in them. We did MHP near a base.
- 2yHenry ClarkPro MemberDeveloper · Member since 2020 · 4k+ posts · 4k+ votes
As far as people losing money. That is part of the learning process. If their mentors did t teach them, they need to whatever.
Start small and Make Your Bug Mistakes Early. - 2yDon KonipolBusiness MemberInvestor · The Woodlands TX / Avon, CT · Member since 2009 · 6k+ posts · 10k+ votes
I really like the posts in this thread, lots of good viewpoints and information
@Chris Seveney, many people investing are totally CLUELESS. Seems like ESPECIALLY CLUELESS about mortgage debt. They have no idea or understanding of compound interest, amortization, ROI, APR, or discount note purchases. You see it when the ignorant state that banks are scamming everyone by charging COMPOUND interest, and their "proof" is the amortization table showing all the interest being paid over 30 years. Which is why they'll pay $5,000 for someone to show them how much interest they "save" by paying down their mortgage faster.
50 years ago Jimmy Napier wrote “invest in Debt”. Anyone contemplating note investing should read this book, and reread it until they thoroughly understand it.
There are a number of different risks in note investing. There’s interest rate risk, the risk that rates go up thereby decreasing the value of your fixed rate note. There’s default risk, the risk that the borrower doesn’t make the monthly payments. And there’s legal risk, the risk that either through insufficient documentation, or adverse court decisions, the creditors ability to obtain ownership of the secured collateral in event of default is compromised.Peer to peer lending sites utilizing unsecured loans have familiarized people with unsecured lending. So 13% interest for an unsecured loan seems good compared to the 7 - 9 % available through the peer to peer site. Obviously, we believe that without a proper vetting of the borrowers credit history, etc. this type of loan is a crap shoot. My personal experience is unsecured lending requires a 18% + interest return to be viable; hence look at credit card rates.
Gurus dispensing bad advice is nothing new; they’ve been around since the late 1960s, empowered by the first run up in California housing prices. What’s changed is how quickly and widespread the internet has enabled the dispensing of information to be. And the financially unsophisticated jump on the bandwagon without any real due diligence. In fact one they “buy in” they become downright hostile to anyone questioning the validity.
Putting together a portfolio of real estate investments, especially in the mortgage note arena, can be quite a detailed and painstaking enterprise with lots of sue diligence and lots of risk - return trade offs to consider. Diversification can lower risk allowing for higher return/risk investment for a percentage of the portfolio. I’m continually testing different risk return profiles of investments to optimize the returns of my total portfolio investments given the level of risk I’m willing to tolerate. Of course all of these determinations of both return and risk are subjective; I rely on my experience to be able to properly discern the data and clues available concerning not only a particular investment but the economic forces in general.
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Don Konipol:
I really like the posts in this thread, lots of good viewpoints and information
@Chris Seveney, many people investing are totally CLUELESS. Seems like ESPECIALLY CLUELESS about mortgage debt. They have no idea or understanding of compound interest, amortization, ROI, APR, or discount note purchases. You see it when the ignorant state that banks are scamming everyone by charging COMPOUND interest, and their "proof" is the amortization table showing all the interest being paid over 30 years. Which is why they'll pay $5,000 for someone to show them how much interest they "save" by paying down their mortgage faster.
50 years ago Jimmy Napier wrote “invest in Debt”. Anyone contemplating note investing should read this book, and reread it until they thoroughly understand it.
There are a number of different risks in note investing. There’s interest rate risk, the risk that rates go up thereby decreasing the value of your fixed rate note. There’s default risk, the risk that the borrower doesn’t make the monthly payments. And there’s legal risk, the risk that either through insufficient documentation, or adverse court decisions, the creditors ability to obtain ownership of the secured collateral in event of default is compromised.Peer to peer lending sites utilizing unsecured loans have familiarized people with unsecured lending. So 13% interest for an unsecured loan seems good compared to the 7 - 9 % available through the peer to peer site. Obviously, we believe that without a proper vetting of the borrowers credit history, etc. this type of loan is a crap shoot. My personal experience is unsecured lending requires a 18% + interest return to be viable; hence look at credit card rates.
Gurus dispensing bad advice is nothing new; they’ve been around since the late 1960s, empowered by the first run up in California housing prices. What’s changed is how quickly and widespread the internet has enabled the dispensing of information to be. And the financially unsophisticated jump on the bandwagon without any real due diligence. In fact one they “buy in” they become downright hostile to anyone questioning the validity.
Putting together a portfolio of real estate investments, especially in the mortgage note arena, can be quite a detailed and painstaking enterprise with lots of sue diligence and lots of risk - return trade offs to consider. Diversification can lower risk allowing for higher return/risk investment for a percentage of the portfolio. I’m continually testing different risk return profiles of investments to optimize the returns of my total portfolio investments given the level of risk I’m willing to tolerate. Of course all of these determinations of both return and risk are subjective; I rely on my experience to be able to properly discern the data and clues available concerning not only a particular investment but the economic forces in general.
Nice post Don 100% right on target. Although the concept of being the bank is quite simple for most to grasp its still a small % of investors portfolio. I just got my PL Winter addition sitting on my desk this one looks like its got some good articles in it. Being a land lord and collecting rent it seems to me will stay the #1 vehicle especially for folks just starting out.
I created a very unique note investment back in 2012 and a few folks knocked me off. However when I tried to market it to Aussie investors they simply could not grasp it.. Since there is no real secondary note market in Aussie land .. they only knew owning the asset and being landlords.
So to a certain extent we have that here in the US.. Most of the investor clients I have worked with over the decades were experienced accredited and could easily grasp the concepts. In addition a lot of them had aged out as landlords and just did not want to deal with rentals anymore and wanted to just clip coupons at a set rate of return. - Rental Property Investor · San Francisco Bay Area · Member since 2022 · 1k+ posts · 1k+ votes2y
Someone on BP messaged me about doing transactional lending and a double close. I spoke with him on the phone and he asked me if I could help fund his deal for $91,000 and it would be wired to a title company. He would pay me 7% and I would get the money back in 24 hours, 48 hours at the most. He does his sales pitch about loaning him $100,000 and doing multiple deals in a month and I could supposedly make $30,000 a month by doing 10 deals a month.
I told him I wanted to research this. I've never met this guy - he's out of state in Florida, says he's a licensed realtor. He sent me the purchase agreements for these properties. The title company emails me paperwork thinking I'm going to loan him over $200,000 for 2 properties... absolutely not. Then lots of high pressure, promises me 10% then 12% if I can fund his deal or find someone else. I have no idea if this title company is legit. They have a website. I could throw up a site and say I'm XYZ business.
I guess some people make money doing transactional lending but this whole scenario sounded shady. If it was someone in the Bay Area I could meet in person, may be worth considering but someone over 2000 miles away, hard pass. Making $30,000 a month.... come on.... I have a bridge to sell you in Alaska.
- 2yJay HinrichsBusiness MemberReal Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
Quote from @Becca F.:
Someone on BP messaged me about doing transactional lending and a double close. I spoke with him on the phone and he asked me if I could help fund his deal for $91,000 and it would be wired to a title company. He would pay me 7% and I would get the money back in 24 hours, 48 hours at the most. He does his sales pitch about loaning him $100,000 and doing multiple deals in a month and I could supposedly make $30,000 a month by doing 10 deals a month.
I told him I wanted to research this. I've never met this guy - he's out of state in Florida, says he's a licensed realtor. He sent me the purchase agreements for these properties. The title company emails me paperwork thinking I'm going to loan him over $200,000 for 2 properties... absolutely not. Then lots of high pressure, promises me 10% then 12% if I can fund his deal or find someone else. I have no idea if this title company is legit. They have a website. I could throw up a site and say I'm XYZ business.
I guess some people make money doing transactional lending but this whole scenario sounded shady. If it was someone in the Bay Area I could meet in person, may be worth considering but someone over 2000 miles away, hard pass. Making $30,000 a month.... come on.... I have a bridge to sell you in Alaska.
Transactional lending is real .. And there are ways to protect yourself.. But if you dont know the ins and outs of the process then you need to learn it before you do it. these are deals that wholesalers do and they will have an end buyer.. thats what you need to check on do they have the end buyer and you dont want your money going into any escrow as EM this is the biggest issue I have with the gator lending and the lack of high level advice.. The reason U dont want it to go in as EM is it takes all parties to sign off to return your money.. if the wholesaler cant perform and pisses off the seller the seller may just bow their back up and not sign the cancellation and release.. Title company cannnot release your money without all parties signing. So you need to know how to do these correctly . and I would never do this for someone that just hit me up on BP.. I know BP is about collaboration but keep in mind there are tons of beginners on this site. So they have nothing to risk your taking all the risk. - 2yAlex BreshearsBusiness MemberLender · Springfield, MO · Member since 2020 · 351 posts · 504 votesI can’t tell you how happy I am that you stood your ground! I’ve seen this before and so many people just bend to their will. I have done transactional funding - but I still underwrite the deal as if they would keep it on the off chance they can’t get the end buyer to exercise and actually close. You did the right thing!
Quote from @Becca F.:
Someone on BP messaged me about doing transactional lending and a double close. I spoke with him on the phone and he asked me if I could help fund his deal for $91,000 and it would be wired to a title company. He would pay me 7% and I would get the money back in 24 hours, 48 hours at the most. He does his sales pitch about loaning him $100,000 and doing multiple deals in a month and I could supposedly make $30,000 a month by doing 10 deals a month.
I told him I wanted to research this. I've never met this guy - he's out of state in Florida, says he's a licensed realtor. He sent me the purchase agreements for these properties. The title company emails me paperwork thinking I'm going to loan him over $200,000 for 2 properties... absolutely not. Then lots of high pressure, promises me 10% then 12% if I can fund his deal or find someone else. I have no idea if this title company is legit. They have a website. I could throw up a site and say I'm XYZ business.
I guess some people make money doing transactional lending but this whole scenario sounded shady. If it was someone in the Bay Area I could meet in person, may be worth considering but someone over 2000 miles away, hard pass. Making $30,000 a month.... come on.... I have a bridge to sell you in Alaska.
No matter what - you have them sign your documents that you had your attorney create for you. Do not use someone else’s docs - ever. You don’t know if they are legal in that state or even protect you as the lender. It’s critical you know your docs and are familiar with your terms in those documents. Don’t fall to the pressure tactics. Stick to your guns and your gut! - Investor · Atlanta, GA · Member since 2016 · 627 posts · 374 votes2y
Clearly is not Transactional Lending based off what he stated @Becca F. So BE CAREFUL whatever you do. Thank god you already had some red flags, not desperate and acted on your gut feeling.
I see wholesalers all the time ASSUME they know what Transactional Lending is when they really mean something else and are either not knowledgeable or intentionally trying to find an inexperienced private lender.
T. Funding loans are usually around 1-2 points, not 7%, so that person might be doing a double closing but I can tell you right now there would be a delay before the BC closes or it was with a different closing closing company. ANYTHING can go wrong in a second and that's not what you want to be caught up in.
I 100% concur with @Jay Hinrichs on someone reaching out from BP. I don't care if they were a referral from someone I knew let alone here from BP, I'm still going to protect myself and stick to my SOP.
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