Private Money (mortgage) Lending

9 Replies

So I have been approached by an investor with an opportunity to provide a private mortgage on a fix and flip.  I've never done any PML but I do want to start.  I'm trying to educate myself as quickly as possible.  Here are the terms the borrower is seeking.  I have thoughts on some of these items but would love to hear from others with experience.

- Borrower (is a being coached by a friend) - has been flipping for 3 years.  

- LTV - 50-60% (I think the CMA is high but the LTV is good either way)

- $60k loan amount

- 12% int, compounding

- 12 month term

- interest and principle paid at close

- Borrow has already purchased the property and nearly 80% of the repairs are complete - I visited the property and the rehab is looking good.

Would love to know your thoughts, feelings, ideas...

Thanks.

JC

sounds like gap funding and a second position for those type of funds your return is far to low for the risk

Unless your just being a nice guy and helping him out in that case its what ever you guys decide on.

Has the borrower ever done a rehab? You stated they are being coached. Does the coach have a financial interest in the deal? Does the coach have any control? If not, this may be a newbie's project. Newbies make mistakes, sometimes expensive ones. How much money does the rehabber have in the project? Do they have enough skin in the game? Will it be easier for them to walk away than finish the project if they get into trouble? Will they have enough money to finish the project with your funds? If not, where will they get the rest? If 80% of the rehab is done, why will it take a year to complete? Is the market rising, stable, or precarious? What might the property be worth in a year? Is there a penalty rate if they exceed the loan term? Will payments begin if they exceed the loan term? Is there a minimum payment due if the rehab/sale is sooner than a year or if they find less expensive financing and cash you out? Do you have loan documents that protect you? Will a mortgage be recorded? Will you require title insurance? Any other insurance? (What happens if the project burns before it comes to market?) Have you done rehabs yourself? Have you funded projects before? 

If you decide to fund? Will there be an escrow account so funds can be disbursed as work is completed? How many draws will be allowed? What kind of documentation, inspection will be required for the draw?

I could go on but I hope you got the point? If you have never done this before there may be more things you don't know than you do? Are you willing to do the work needed to evaluate the deal properly or to clean it up if it goes bad? Are you willing to foreclose? How much of your net worth is the $60K? How badly will it hurt if you lose it?

Originally posted by @Jonathan Carter :

Good point Jay, I forgot to mention... it is a first position lien/loan. 

 if you trust him should be OK  just get title insurance and make sure there are no leins out there i would want to see paid invoices of the major subs that have worked on the project to date.. some states like Oregon Mechanics liens jump ahead of any mortgage..   other wise pretty good deal with no points its a little low for the small dollar loan.. but like  i said if your doing your buddy a favor and you are OK then go for it.

Does buyer have reserves to fix up property. Will the house sell in a good market

How much or what is left on the 80%. Is the borrower doing the expensive repairs that do not offer much "curb appeal" or things that dont make it look good. A half *** rehab looks worse than something that needs to be rehabbed. 

Jeff has alot of good points. 

But as 1st position despite the unknowns you are in a good position. I have done flips with 90% LTV, just got to move quicker.