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Re: Alternative investment: Private mortgage loans
Old 03-17-2007, 05:17 PM   #21
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Re: Alternative investment: Private mortgage loans

Seems like that 'after tax' return is awfully low for this amount of risk you are assuming.
8.5% - 34% = 5.61% AFTER TAX.
10% - 34% = 6.6 % AFTER TAX
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Re: Alternative investment: Private mortgage loans
Old 03-17-2007, 05:21 PM   #22
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Re: Alternative investment: Private mortgage loans

Calmioke: You said earlier:
One was a divorce situation, was going to lose the house to the lender, we stepped in at a higher rate and paid the underlying debt.

So what was the plan here? To get some money to pay a new mortgage at a higher rate until she sold the property?

Also, Road Warrior: Is that a mortgage Reit you are in?
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Re: Alternative investment: Private mortgage loans
Old 03-17-2007, 09:13 PM   #23
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Re: Alternative investment: Private mortgage loans

Martha said "Some of these type of loan companies do not follow all the rules required by lending laws and securities laws. If they are selling you a loan, they are selling you a security. Depending on how many loans they sell, and whether the investors are accredited, they might be violating state or federal securities laws."

- I'm not at all sure the lender is selling us loans - they facilitate them, but the loan is not made if an investor doesn't agree to take the borrower's note in trust. Shoot - I don't know - do the initials CMI, CCS, CFS mean anything special?

Quote:
Originally Posted by modhatter
How long have you been doing this for? With re-fi rates so low and costs at a minimum now and for the past few years, there has to be some serious problem with the borrower or property, for someone to go for a higher rate like that.

Were you saying that the property looked so bad, that a normal lender did not want to lend on it? Often re-fi's are for new roofs or remodeling, and if the lender is concerned, they can ask to control the purse strings and pay the contractor directly themself after an inspection. Same as building a house. They want to make sure the money goes into the structure.

I am currently a landlord and sick to death of going in and having to re-do everything every few years. I would love to find another venue in real estate without tenants.
We've been on the lending side since late '04. The guy that had a pizza parlor 'a building had a loan with us for less than a year before getting new financing. Our longest loan, the first one we made, was on a decent lot with an early 80's mobile home that the borrower was renting out - doing the OPM thing. The loan was for less than the lot was worth. About a year into the loan the mobile burned. The insurance on the mobile couldn't be cashed without us signing it. We could have been butts and ended up with the lot, instead we had the insurance money held in escrow and doled out to the borrower as they cleaned up the lot and moved in a much newer double wide, which then was part of their security. Monthly payments remained regular.

Quote:
Originally Posted by modhatter
Calmioke: You said earlier:
One was a divorce situation, was going to lose the house to the lender, we stepped in at a higher rate and paid the underlying debt.

So what was the plan here? To get some money to pay a new mortgage at a higher rate until she sold the property?
Suspect that's just what the plan is. Her credit was pretty well savaged by hubby, but the 10 acres is in a great location, great view. Wouldn't bother me too much if we ended up with a great vacation location.... aside from the psychic trauma of the foreclosure. Doubt that will happen though - I've seen pictures of the inside of the house - as a fellow landlord you know there are some housekeeping styles that just do NOT scream failure.

Quote:
Originally Posted by Alex
Seems like that 'after tax' return is awfully low for this amount of risk you are assuming.
8.5% - 34% = 5.61% AFTER TAX.
10% - 34% = 6.6 % AFTER TAX
Yeah I know. Taxes suck. Figure in whatever rate of inflation you feel like and it's even worse. It does beat CD rates though, by 3-4%. Since we are used to real estate I'm just not feeling the risk. When I think individual stocks I tend to think ENRON - if I go for index funds I anticipate volatility and what? 9-10% return average? At 58 I'm trying to move us out of the apartment/house rental business and stop babysitting tenants. Can't do/don't have IRAs, so all our property sale ducats are going to get hit by the tax man. I figured that 6 or so loans totaling $500k and $500k in CDs would generate a very secure comfortable annual income. The remainder of our stash could go into index funds, hopefully some sort of tax advantaged funds that could grow undisturbed - but that's something I am NOT at all familiar or comfortable with. I am more than appreciative of any suggestions for maximizing after tax return and minimizing risk.
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Re: Alternative investment: Private mortgage loans
Old 03-17-2007, 09:52 PM   #24
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Re: Alternative investment: Private mortgage loans

You need to also make sure the loan is actually recorded in your name in the real estate records and not in the servicing company's name.

I've had a couple of clients who were in deals like this. It turned out the the servicing company told multiple people they had the first lien on the same property. The house of cards eventually fell apart and the clients lost a few bucks.

Trust but verify
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Re: Alternative investment: Private mortgage loans
Old 03-18-2007, 04:39 PM   #25
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Re: Alternative investment: Private mortgage loans

What happens if a the borrower defaults. Who pays for all of the legal bills, evictions, real estate agents fees, re taxes, etc...

And who takes care of the handling of the property if it defaults? The Bank?

If you have a 40% cushion on the value of the property you may be protected.

I like the idea of investing in a pool of loans for diversification.


Anybody have any info on this type of investment
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Re: Alternative investment: Private mortgage loans
Old 03-18-2007, 05:40 PM   #26
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Re: Alternative investment: Private mortgage loans

Quote:
Originally Posted by calmloki
Martha said "Some of these type of loan companies do not follow all the rules required by lending laws and securities laws. If they are selling you a loan, they are selling you a security. Depending on how many loans they sell, and whether the investors are accredited, they might be violating state or federal securities laws."

- I'm not at all sure the lender is selling us loans - they facilitate them, but the loan is not made if an investor doesn't agree to take the borrower's note in trust. Shoot - I don't know - do the initials CMI, CCS, CFS mean anything special?
If you are making the loan directly, then the "facilitator" is a loan broker or mortgage broker. Some states require these types of brokers to be licensed. I would ask if your broker is required to be licensed.

If you are making the loan directly, then you want to have the note payable in favor of you and the mortgage/deed of trust run in your favor. You want title insurance. You want to know that the loan terms comply with state and federal law and all loan disclosures have been made. To make sure that is the case, you should get an opinion of the broker's counsel that the terms comply with state and federal law. To make sure all ducks are in a row, you should have a lawyer look at the loan docs, but that will eat into your profit.



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Re: Alternative investment: Private mortgage loans
Old 03-18-2007, 05:42 PM   #27
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Re: Alternative investment: Private mortgage loans

Quote:
Originally Posted by chinaco
What happens if a the borrower defaults. Who pays for all of the legal bills, evictions, real estate agents fees, re taxes, etc...
Generally, the owner of the loan pays for these things.


Quote:
Anybody have any info on this type of investment
Like what? I used to have clients that would broker these loans, but they would limit the sale to institutional or accredited investors.
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Re: Alternative investment: Private mortgage loans
Old 03-18-2007, 06:32 PM   #28
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Re: Alternative investment: Private mortgage loans

Quote:
Originally Posted by Martha
Like what? I used to have clients that would broker these loans, but they would limit the sale to institutional or accredited investors.
Just general information for educational purposes. Based on the interest rates (8.5% to 10%) the original poster described I would think the loans were for high credit risk borrowers.
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Re: Alternative investment: Private mortgage loans
Old 03-18-2007, 07:42 PM   #29
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Re: Alternative investment: Private mortgage loans

I imagine Martha knows what she is talking about.

Bummer! What a way to spend one's time!

Ha
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Re: Alternative investment: Private mortgage loans
Old 03-19-2007, 01:37 AM   #30
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Re: Alternative investment: Private mortgage loans

In my case, since I work with a 'fund' of these loans, the the company I am investing with handles all of the legal stuff. If it defaults, they sell it themselves.

As Martha points out they are required to be licensed in my state. Every year the company has an independent audit as well. Only loans in first position are taken, and only when there is substantial equity.

All in all, I have been very pleased and happy bringing in my 9-12% returns with minimal risk.

Another nice thing with the fund is that when the interest rates go up, so do my returns!

Quote:
Originally Posted by chinaco
What happens if a the borrower defaults. Who pays for all of the legal bills, evictions, real estate agents fees, re taxes, etc...

And who takes care of the handling of the property if it defaults? The Bank?

If you have a 40% cushion on the value of the property you may be protected.

I like the idea of investing in a pool of loans for diversification.


Anybody have any info on this type of investment
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Re: Alternative investment: Private mortgage loans
Old 03-19-2007, 09:46 AM   #31
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Re: Alternative investment: Private mortgage loans

I get uneasy whenever I hear about people looking at second trusts and similar "real estate" investments. Especially with subordinate loans, in the case of a foreclosure, they often become worthless. I tend to the pessimist, so I think the mortgage & real estate problem may get a bit worse. Uncle Sam does bail a lot of folks out, but that'll have to stop somewhere. You may want to concentrate on Federally insured interest generating investments, like I do, if you want highest safety.
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Re: Alternative investment: Private mortgage loans
Old 03-19-2007, 11:03 AM   #32
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Re: Alternative investment: Private mortgage loans

Quote:
Originally Posted by Peaceful_Warrior
In my case, since I work with a 'fund' of these loans, the the company I am investing with handles all of the legal stuff. If it defaults, they sell it themselves.

They do require you to be accredited, as Martha points out, and they also are required to be licensed. Every year the company has an independent audit as well. Only loans in first position are taken, and only when there is substantial equity....
This sounds a lot like what my Mom did a bit of - she would buy "shares" of the loan company's loans and if default occurred the loan company handled the legal stuff and sold the property. Sounds like Peacefull's company is doing variable rate higher interest loans, Mom's (and our's) are fixed. When I compared, the interest on the loans we are making was about a point higher than the "share" type at the company Mom used.

Quote:
Originally Posted by pedorrero
I get uneasy whenever I hear about people looking at second trusts and similar "real estate" investments. Especially with subordinate loans, in the case of a foreclosure, they often become worthless. I tend to the pessimist, so I think the mortgage & real estate problem may get a bit worse. Uncle Sam does bail a lot of folks out, but that'll have to stop somewhere. You may want to concentrate on Federally insured interest generating investments, like I do, if you want highest safety.
Granted. The only loans we make put us in a "first" position. What we buy is an account secured by a trust deed. There is a title search done, insurance and taxes are required to be paid, we are listed on the insurance and informed when premiums are due. Taxes are paid incrementally to us with the monthly payments, when due we pay them to the county. In case of a default we are responsible for the foreclosure proceedings, cost of which is added to the debtor's balance.

I spoke with a lawyer who has handled a number of foreclosures connected with this loan company, he said these loan papers normally allow a "notice and sale" procedure and that it rarely goes the full distance to sale: typically other financing is arranged or the debtor sells the property. Rough expences would run ~$3000 and maybe 6 months.

It may be worthy of note that we are located in Oregon, a low foreclosure rate state according to another thread. We haven't had property appreciate at the nosebleed rate of some other areas "cough" SoCal "cough". We have made sub $100k loans rather than a single grande style loan, kinda like our rentals - a number of smaller rentals rather than a single big egg in the basket. We drive out to look at anything we might lend on and I schmooze around to try and get an impression of the borrower - a hint of a litigious nature turns me right off.

While not for everyone, this investment is working for us so far - but our experience is short term. I sure do like the payments showing up in our checking account like clockwork. Kinda like rent, but no plumbing or neighbor complaints.
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