Investor · SC · Member since 2020 · 43 posts · 32 votes
A realtor I've used frequently asked if I'd be interested in helping a doctor client of his finance a condo, (it will be his primary home) He can't get financing because of a messy divorce and the closing is next week. He would like a loan of $190,000, paying me 6% interest. If he defaults after one year the property would be turned over to me. (This would all be drawn up legally.) My question - Is this worth my time and if so, what would be a fair interest rate?
@Nancy Bender I see it is your first post, welcome to BP
I wouldn't consider it, since it is going to be his home. There are way too many consumer protection laws that you can run afoul of. These laws can not only keep you from collecting all your money due they could conceivably put you in jail. The Dood Frank law the @Tim Herman mentioned is an example.
If I was going to lend money as a private lender I would expect 10-12%. That is want I generally pay when I borrow private money. However private money rates can be below 6% or as high as 12%+
@Nancy Bender is this a personal loan or secured by the property. Contract for deed if legal in South Carolina. If it is a mortgage then you will have to foreclose. What is the cost in SC to foreclose. Personal loan , no way. What if he declares bankruptcy? Have you vetted him to see if he is qualified. Dodd Frank rules loaning money to someone unqualified, yikes. To me more questions than answers and it depends on your risk tolerance.
@Nancy Bender I see it is your first post, welcome to BP
I wouldn't consider it, since it is going to be his home. There are way too many consumer protection laws that you can run afoul of. These laws can not only keep you from collecting all your money due they could conceivably put you in jail. The Dood Frank law the @Tim Herman mentioned is an example.
If I was going to lend money as a private lender I would expect 10-12%. That is want I generally pay when I borrow private money. However private money rates can be below 6% or as high as 12%+
Welcome! I will agree with the above. Another thing we don't know (Besides the legal stuff obviously), is this property worth $1.9 MIl and you are in first position? Is it worth $150K and he is going zero down? There are plenty of risk factors just on the property side. A condo says an "HOA", are dues current, did they already claim it? Just way to much to do from a computer. Suggest you contact an attorney/Accountant etc in your area to really dive in.
Thanks for the welcome! I am speaking to a lawyer tomorrow. I have since found out that he is a doctor with two divorces in 10 years, which put him in a bad credit score category. He has put down 10K on a 199K one bedroom condo (everything is current). He will lose that without finding a private lender before his July 1st closing. The idea is to have me buy the condo and he becomes my tenant with his rent going towards the purchase of the unit.I also think the 6% is not enough and then there is the matter of the monthly costs I will incur owning it. His rent has to cover all of those expenses first. If there are too many risks for me and not enough benefits, I definitely won't be doing it. I wasn't looking for this kind of opportunity to begin with, my realtor knew I was interested in income producing properties so he brought this to me today.
@Nancy Bender OK now I am confused. Are you buying it and renting it out to him OR is he buying it and you are simply collecting interest on a loan? There is a big difference, are you going to be the owner or is He going to be the owner.
To follow up on this post, I am going to be a private lender to this buyer. The length of the loan is one year. We are doing an interest only loan at 12%. The principle of 156K will be paid back to me next July 1. I have myself covered in that if he defaults on the loan, the condo becomes mine. There is a deed in lieu of foreclosure statement already included in the contract. I wanted that in there in the event of any unforeseen possibilities that could occur!
If the loan is for his homestead, you can NOT put a 1 year balloon in the contract. It has to be a minimum of 5 years to be valid and enforceable. He does not have to pay you back in 1 year. He may, but if he does not want to, you can not enforce that contract.