All Forum Posts by: Taylor Green

Thanks @Ellis San Jose helpful as always...

Sorry this is a bit long...

If Lender B's 75k is backed by Lender A's 75k wouldn't that count as collateral?

This is what I was thinking... (no idea if it's legal or even possible)

Lender A is in an equity partnership, 50/50 profit split with the flipper.

The flipper needs 150k for the entire property, so Lender A funds their joint LLC, as per their agreement.

Before the funding takes place, Lender A has an agreement with Lender B to where Lender B gets a fixed rate of return for his investment.

Lender A contributes 75k, and Lender B contributes 75k to a joint bank account, which then funds the flipper's and Lender A joint LLC.

Lender B is given a promissory note by Lender A, using Lender's A 75k as collateral.

The property takes 5 months to complete and makes a 20k profit.

Lender A and the flippers joint LLC is then funded with 170k, they split the profit 10k/10k.

Then Lender A pays back Lender B (75k + interest @ 10% = 3.5k), as per the promissory note.

Lender A is left with 81.5k, so 6.5 k profit.

(170k-10k = 160k, 160k - 78.5k = 81.5k)

Now, if the property takes a 20k loss.

150k - 20k = 130k

Lender A and the flippers joint LLC is funded, no profits to split.

Lender A then pays back Lender B (75k + 3.5k = 78.5k), as per the promissory note.

Lender A is left with 51.5k, so a 23.5k loss

(130k - 78.5k = 51.5k)

Lender B investment should be protected up to a 75k loss Lender A has invested. Which on a 150k fix and flip should never happen...

Lender A's risk is essentially with the equity partner. The amount of interest payments to Lender B is relatively low.

Sorry for the length, I hope it is somewhat easy to understand... Like I said before, I have no idea if this even makes sense.

@Jon Holdman

Thanks for clearing that up Jon. Yes, I am considering being the lender. I will take your recommendation of selling as-is, if this situation is to ever occur.

I had another question you might be able to answer that isn't really related to my original question, but has more to do with structuring partnerships.

If I was to lend on a property at 15% and I was to find a passive investor (family member) who would lend at 12%. The reason for the lower percent would be because he had nothing to do with valuing the property or meeting prospective borrowers.

1) Do you think it is fair give them 12% instead of the 15% that I would be getting?

2) If yes, is there even a way to structure something like that?

@Darrin Carey

I have been thinking about your response and I think I might be a bit confused still by it. Please correct me if I'm wrong, because I think I might be...

At the auction, the lender would set the price of the property to at least what he is owed. If somebody buys the property at the auction, the lender gets his money back, if the property sells for more, the lender gets his money back and gives whatever extra to the borrower.

If the property does not sell at auction, wouldn't the property then go to the lender? The lender would then sell the property and keep whatever money the borrower and the lender had invested into it?

Just to keep adding to this thread.

@Ellis San Jose @Anson Young

My question is:

What if a lender was to become an equity partner with a fix and flipper, the lender provides money, the flipper does work, split profits 50/50.

Could the lender used borrowed funds?

Say the project was to cost 150k, the lender provided 75k and found an investor to borrow 75k at a fixed 10-12% rate. Could the lender back the investors capital by securing it against the lenders capital in the project? How could you structure something like that?

Hi,

I was just reading over this thread. Lots of good stuff I'm trying to learn...

Can the lender in 1st position put language in the contract that doesn't allow the borrower to add a 2nd without his approval? Would that be common practice to do?

Thanks

Thanks again for the responses Bill and Darrin.

@Bill Gulley

You make a good point about any type of lender asking if the borrower has had a foreclosure in the past 3 years. Am I wrong in thinking that a foreclosure would hurt the borrowers reputation among private lenders? I'm sure if the property was profitable enough and the LTV was low the borrower could still find a lender. However, on marginal deals I'd guess the lenders would hold their money a bit tighter?

Great information, cleared up a couple of questions I had.

Jon,

If the property doesn't get bought in auction, then the lender would be in control of the property, correct? The lender would then have the option of finishing the rehab or selling as-is and hopefully make up for the foreclosure costs. Is that correct?

I had another question in terms of reviewing the track record of a potential borrower.

The valuation of the property is obviously the most important thing to decide if you are going to lend on it. In terms of reviewing the track record of the borrower I just want to make sure I am not forgetting anything. I have asked the potential borrowers for their profit and loss statements as well as making sure they seem like decently trustworthy people. Anything else I should be looking for besides their profits, and average time it takes to complete a project?

Thanks.

Thanks Jon and Jeff, helpful as always.

If the borrower forces foreclosure of the property, how long does the process take and how much does it cost? Is there a rough estimate you could give or does it just vary too much to even give an answer.

Jeff,

When you say the lender might get the property back if it didn't sell at auction... What would be the alternative? If it sells at auction, the lender should be paid back, correct? If it didn't sell, then shouldn't the lender take control of the property? I am just learning how that process would work so I easily could be wrong, but I thought that's what would happen!

I agree with just making sure the LTV is low enough and finding a good property and avoiding this whole mess... but I figured I better be prepared for worst case scenario.

Hi,

I was wondering what the repercussions were for a fix and flipper (borrower) if they were to default on payments and get foreclosed on by their private money lender.

If the foreclosure process were to happen, I know the lender would take control of the property to get his money back.

However, after that happens, is there anything that would go against the borrower besides his own money he invested in the property? Since the foreclosure process is non-judical, the process is not the same as a regular loan through a bank, so is there nothing that would be recorded on his personal records or credit score that would affect getting loans from other sources in the future?

Thanks for the help.

Thanks for the input. It is great hearing about past experiences from people who have walked the walk.

Would you guys consider lending a safe and reliable enough strategy to base your retirement income off of?