I have a friend in upstate New York who is interested in funding an experienced investor's house flips for a 12 - 15% ROI. Passive investing, as some call it.
My recommendations to him in order to find these individuals or groups to partner with in these type of ventures was to attend local REIAs, join BP and read and post in the forums and to contact real estate attorneys in the area for recommendations.
My question: How would you recommend "vetting" house flippers before funding their projects? I told him to look for someone who provides an itemized, detailed breakdown of their project with documentation to back up the numbers; ask for a portfolio of their previous flips with itemized breakdowns of the financials; to contact other people who have funded said investor's projects. And to make sure he uses a good RE attorney before entering in to any agreement.
What would you add to that?
Tell him to call me, I'll pay him 2 pts and 12% all day long.
Unfortunately its a little tough to vet them if you don't know the biz. First thing you do is check the numbers. When I lend I basically just ask myself if I would want the house for what I'm lending.
Lending is 3 things, ability to repay, intent to repay and collateral. Called different things, but thats the basics. What are their assets and income, what is there credit/character, and what collateral do you have if the bottom drops out. Pretty much all lenders look at these three things. Hard Money charges more because they supposedly focus more on the collateral and less on the others.
You're fine on the rest of it for the most part. I dont really have a 'portfolio' of what I've done, but probably should. The real thing is making sure your borrower knows what they're doing and you're at a good enough LTV its hard to lose. You also dont want to pay ahead of the work getting done.
You're looking to build relationships with guys that do some volume, your return drops if it sits on the the sidelines for 2-3 months out of 12, so that rate isnt worth much if you do one loan, get the money back, look for another, vet them, do a closing process etc.
Your main paperwork is the deed and note. Not much to it, but its good to send the money to the atty so he can make sure the deed gets filed. I actually do mine myself to skip the atty fees, but I've been at it a while.
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