Quote from @V.G Jason:
What's the language for the investors? Do they have a minimum period for hold, or a time period they must withdraw ahead of time(like if they want to be paid end of Q1, they must state that by end of Q4). When's the exit period? You're literally just a run on from being wiped. Yes banks can do that, but they also got FDIC insurance behind that'll get involved and a lot more. You have houses you'd have to liquidate.
Are your investors aware you're reserving 20% of total funds, have they seen the balance sheet?
With house prices dropping & rates increasing, I'm quite confident if they'd get a look they may hit the withdraw button. Now hopefully you don't have anything capex wise happen too especially in this Panhandle area with weather coming in. Otherwise, your investors will wipe your 20% reserves out and you'll be force to liquidate the houses to get proceeds over. Your strategy has a lot of holes in it, you're basically leveraged 80% on illiquid assets that are coming down as rates are going up, and hoping you can see it through it with nobody asking for money basically? If you do, you'll do well. I don't think significantly well to bare this risk, but that's your call.
As for the language for investors, below is the 1-page summary of the 61-page PPM. No minimum hold time. If you want to put money in one day and take it out the next, that's fine by me. A single day of interest is cheap to pay and I'm happy to build relationships with clients simple by providing good service. No specific exit period. This is a savings account service. Yes, my investors are aware I run a fractional reserve investment bank that is ultimately personally guaranteed only by my worldwide assets. But these assets are substantial and sufficient to provide a meaningful level of safety. To be very clear, I can afford to cash out (through cash, credit, and stocks) all of my investors without selling a single house.
As for rates, all of my mortgages are 30-year fixed. The inflationary environment we live is has so far put upward pressure on rents. And yes, I share much more than my balance sheet with investors. W-2s, tax returns, the lot. My net worth is multiples my total debt obligation to clients, I run my business conservatively.
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Account Terms and Conditions
Maximum balance: $1.5M
The borrower agrees to provide a bank account service to the lender paying 8% per annum, with interest calculated and credited daily at midnight PST via balance(t+1) = balance(t) * (1.08)^(1/365). The account shall operate according to the following terms and conditions. Some of these conditions can lead to the account switching to a penalty interest rate of 25% per annum.
1) The funds in the account are secured with full recourse to the worldwide assets of the borrower, no matter how indirect the ownership structure is, no exceptions.
2) Deposits and withdrawals can only be made electronically to ensure unambiguous dates of transactions and secure transfers.
3) The lender can initiate a deposit by performing an electronic transfer to the borrower's account.
4) The date of deposit will be the date of receipt of funds listed on the borrower's bank statement.
5) If the received deposit would take the lender's account balance over the maximum balance, this deposit shall be returned in full within 7 days during which no interest will accrue on these funds. Failure to do so will result in the lender's account switching to the penalty interest rate and the deposit posting to the lender's account 7 days after receipt until the excess deposit is returned.
6) The lender can initiate a withdrawal at any time by sending an email requesting funds. Interest shall continue to accrue until these funds are sent. The funds must be sent within 7 days of the email requesting withdrawal. Failure to do so will result in the lender's account switching to the penalty interest rate until the funds are sent.
7) Transactions, interest, and current balance shall be provided via an online portal.
8) There shall be no fees or transaction limits associated with the account.
9) The borrower has the right to close the account at any time by sending all owed funds.
10) Even in the event of death or incapacitation of the borrower, this contract gives the lender full recourse to the borrower's estate, even after transfer to other beneficiaries of the estate, without exception or limitation.
