Need cash out of a FREE and CLEAR property

6 Replies

I have a friend (Potential Private Money Investor) who owns a house free and clear with BAD credit. How can we get cash out of the situation. I was thinking less money than more, however, if it can be done, and its a lot to it, they are willing to pull out more vs less. Does the amount matter? I have some thoughts but not sure. 

Originally posted by @Troy Durrette:

I have a friend (Potential Private Money Investor) who owns a house free and clear with BAD credit. How can we get cash out of the situation. I was thinking less money than more, however, if it can be done, and its a lot to it, they are willing to pull out more vs less. Does the amount matter? I have some thoughts but not sure. 

 By the way, it's OWNER OCCUPIED. 

Option #1:  Take on a credit partner.  They get the loan for a % of the cash flow/cash out/either or both...it's all negotiable.  The first reaction will be no..."it's my money and I want to keep it".  My answer is "great".  Right now you're keeping it...buried and unreachable in the equity in the house.  His choice.

Option #2:  Get another person with cash equal to whatever your friend wants to get out of (or based on what this other person has available in cash) the house, and set this other person up as the lender. 

No way.  Someone with poor credit has no business taking cash out of their residence to invest in a risky venture like real estate.  The fact the two of you are asking this question tells me he or she is thinking of borrowing against their residence tells me they have limited other assets to invest.  Not a great situation to start with.  Now you want them to put their residence at risk to loan you money.  That has a very high possibility of making a bad situation worse.  I've been a lender and investor in a number of deals.  Some worked out, some turned into total losses.  None put the roof over my head at risk.

Originally posted by @Jon Holdman :

No way.  Someone with poor credit has no business taking cash out of their residence to invest in a risky venture like real estate.  The fact the two of you are asking this question tells me he or she is thinking of borrowing against their residence tells me they have limited other assets to invest.  Not a great situation to start with.  Now you want them to put their residence at risk to loan you money.  That has a very high possibility of making a bad situation worse.  I've been a lender and investor in a number of deals.  Some worked out, some turned into total losses.  None put the roof over my head at risk.

I agree, in general, with these exceptions...

First, there is no risk-free investment. Anyone who says otherwise is scamming you. 

That said, of course, real estate is BY FAR less risky than stocks. If a company folds up, your stock certificates are good for little more than lighting the fireplace. The private money lender needs to be in 1st position on the property, or part of a partnership, JV, etc. in first position. That way, if the investor defaults, the property can be liquidated to recover some - if not all - of the lender's money.

This could actually be a way to help the home-owner improve his credit: If his borrower arranges to send payments directly to the equity lender the borrower's timely payments will help improve the home-owner's credit.

Ideally, the home-owner would arbitrage the equity line: borrow it at one rate, lend it back out at a higher rate. The borrower could send the equity line payment directly to the lender and pay the difference in interest to the home-owner.That's win-win-win-win.

That said, of course, there's the "birds of a feather" factor: what's the end-borrower's credit profile look like? "If you hang out with four 'broke' people, who'll be the 5th?"

Originally posted by @Jon Holdman :

No way.  Someone with poor credit has no business taking cash out of their residence to invest in a risky venture like real estate.  The fact the two of you are asking this question tells me he or she is thinking of borrowing against their residence tells me they have limited other assets to invest.  Not a great situation to start with.  Now you want them to put their residence at risk to loan you money.  That has a very high possibility of making a bad situation worse.  I've been a lender and investor in a number of deals.  Some worked out, some turned into total losses.  None put the roof over my head at risk.

 I agree completely.  I never recommend using your own house as the asset to leverage...even if your credit is 800.  Never put your own home at risk, when control of that risk is in someone else's hands.

Thanks all, but I liked to shed a little more light on the situation. They had a GREAT job, for 12 years, then got downsized. The home got forclosed on, took out the 401k and bought a house cash, lived off what was left til today. They have a good job now and looking forward. Back to an affordable pmt. point.