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Private Mortgage Investing
Old 03-22-2008, 03:40 PM   #1
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Private Mortgage Investing

Hello, all. I'm new here and glad and I found this place. Hoping to share what I know and what I need to know.
I'm looking to park some cash in an investment that is both safe and provides a healthy return, (aren't we all?).
I know a real estate investor who is offering an 11% return if I fund his deals and act as the bank for him. He would bring me the deal and I say yay or nay. I'm protected by the equity in the deal, (at least 30% below appraisal).
I've got the cash, and I'm not interested in earning 3% in a CD.
What do you think? Thank you.
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Old 03-22-2008, 03:57 PM   #2
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I wish you good luck, especially on the 11% return. Someone that has to pay that rate to get a mortgage funded by you just cannot be a very good financial risk. Your friend also does not sound like a real estate "investor" if he needs others to fund his "deals".

And welcome to the site, hope you will stay around and impart some knowledge.
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Old 03-22-2008, 04:03 PM   #3
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Actually, he is an experienced and successful investor. So I'm not worried about that aspect of things. Many real estate investors use private funds because it enables them to quickly buy for cash and get a substantial discount as a result. Going through conventional lenders, especially these days, is expensive and cumbersome.
Still, there are some assurances in place. These include: a promissory note from the individual; the mortgage is recorded with the County, of course; a homeowner's insurance policy will be in place on every deal; the LTV will be a maximum of 70%; and all funds go from my account to the attorney or the title company; and lastly, I can pick and choose the deals I want to fund.
So when I look at the big picture, in today's environment a return of 11% with what I consider low risk seems like a good thing.
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Old 03-22-2008, 04:31 PM   #4
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I'll vouch for what the investor (and investee) is trying to do ... the last bank owned deal I did could/would not be touched by any banks. Vacant too long, was a gut job. Stole it 30% below market by having cash.

11% seems high .. highest I've paid was 10% (to family when prime was 7-8%). That he's willing to pay sooo much has me wondering what he's doing.

Also, be aware, that by putting your name on the mortgage and/or deed you're opening yourself up to any liability which may result from his mis-deeds. Should be looking at an LLC .
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Old 03-22-2008, 07:07 PM   #5
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11% seems high .. highest I've paid was 10% (to family when prime was 7-8%). That he's willing to pay sooo much has me wondering what he's doing.
The old expression in real estate applies here: "It's not the cost of money that matters, but the availability".
After he buys the properties for cash, at some point in the near term, (12 months or so), he refinances the deal and pays back the principal and all accrued interest.
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Also, be aware, that by putting your name on the mortgage and/or deed you're opening yourself up to any liability which may result from his mis-deeds. Should be looking at an LLC .
Agreed. I have two.
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Old 03-22-2008, 07:47 PM   #6
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Originally Posted by AJ290 View Post
Hello, all. I'm new here and glad and I found this place. Hoping to share what I know and what I need to know.
I'm looking to park some cash in an investment that is both safe and provides a healthy return, (aren't we all?).
I know a real estate investor who is offering an 11% return if I fund his deals and act as the bank for him. He would bring me the deal and I say yay or nay. I'm protected by the equity in the deal, (at least 30% below appraisal).
I've got the cash, and I'm not interested in earning 3% in a CD.
What do you think? Thank you.
I hope you are willing to foreclose when the time comes.
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Old 03-22-2008, 08:39 PM   #7
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Many decades ago when I was young and knew everything (or so I thought), I read a book on investing in second trust deeds protected by excess equity, recorded deeds, etc. A friend knew this guy who was offering yields of 25% at that time. Invested in a number of these and it was all sweetness until one day several yrs later when the repayment of the note did not arrive and then a certified letter to the borrower came back "addressee unknown". Then all of a sudden you realize that their lawyers may be smarter than the one you don't even have. Fortunately , perhaps aided or not by the fact that I was going to sit at the brokers (the middleman) offices until I got repaid, I escaped unscathed but many others lost a lot of money.

As others have said, you need to be prepared with knowledge and money for lawyers and for foreclosing. No free lunches in this world. Good luck. These days I am happy with 5% CDs.
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Old 03-22-2008, 08:46 PM   #8
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Originally Posted by AJ290 View Post
The old expression in real estate applies here: "It's not the cost of money that matters, but the availability".
After he buys the properties for cash, at some point in the near term, (12 months or so), he refinances the deal and pays back the principal and all accrued interest.
Let me get this straight. You depend on him refinancing to get your money back plus 11% interest? Is he expecting the property to appreciate or is he going for a 100% LTV deal on the refinance? And do you happen to know who owns the properties that this fellow is supposed to be buying with cash? Do I smell a ponzi scheme?

Do you have a good lawyer? You'll need it.
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Old 03-22-2008, 09:08 PM   #9
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If it's too good to be true..........
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Old 03-23-2008, 03:36 AM   #10
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I hope you are willing to foreclose when the time comes.
If need be, of course. Hell, with a 35 or 50% equity position, I might hope I have to.

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Originally Posted by kaneohe View Post
Many decades ago when I was young and knew everything (or so I thought), I read a book on investing in second trust deeds protected by excess equity, recorded deeds, etc. A friend knew this guy who was offering yields of 25% at that time. Invested in a number of these and it was all sweetness until one day several yrs later when the repayment of the note did not arrive and then a certified letter to the borrower came back "addressee unknown". Then all of a sudden you realize that their lawyers may be smarter than the one you don't even have. Fortunately , perhaps aided or not by the fact that I was going to sit at the brokers (the middleman) offices until I got repaid, I escaped unscathed but many others lost a lot of money.

As others have said, you need to be prepared with knowledge and money for lawyers and for foreclosing. No free lunches in this world. Good luck. These days I am happy with 5% CDs.
Why do you assume that I wouldn't have my attorney involved? As stated above, with a fat equity position, giving me reason to foreclose might be a good thing. . .hehe.

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Let me get this straight. You depend on him refinancing to get your money back plus 11% interest? Is he expecting the property to appreciate or is he going for a 100% LTV deal on the refinance? And do you happen to know who owns the properties that this fellow is supposed to be buying with cash? Do I smell a ponzi scheme?

Do you have a good lawyer? You'll need it.
You're way off. It's someone I know who has been in the business for 15 years. If he's buying right, the refi isn't a problem. If he isn't buying right, I simply pass on the deal.
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Old 03-23-2008, 04:27 AM   #11
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Run.... These things almost always end bad. Why would this really smart real estate investor be coming to a small fry for money. Because he can get it from no one else!!! Why can't he get the money form anyone else? Because more sophisticated investors are not suckers...

Assuming he is not a crook and is competent (which could be a stretch). 11% is too good to be true over any long haul. Remember the risk/reward trade-off. There is no free lunch.

IMHO - Invest your money in a balanced portfolio of stocks and bonds.

Remember, you are talking to successful, conservative investors.
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Old 03-23-2008, 07:05 AM   #12
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I for got this one: There is a reason they are called "second" trusts. Kind of like being late to the Easter Egg Roll - no eggs left and you do not get yours.

But, don't forget to come back next Easter and let us know how it went.
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Old 03-23-2008, 08:00 AM   #13
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In principle, these things sound like they should work. Some things that might cause them to deviate from theory: how sure are you of the protective equity calculation. You might be paying for the appraisal in the closing but who is the appraiser? Who is he really working for? Is the appraisal real? Is the appraiser selected by the real estate investor or by you? It seems like I've heard that you can "shop" for appraisers.....that is ,that the appraisal can be biased, tho perhaps subtly. In todays market where valuations are somewhat murky, how sure are you of that protective equity cushion.

If you have to go to foreclosure, how long does the process take? Do you have the liquid funds to be paying the mortgage in the meantime? Do you have the funds to buy the property if the only bids you get are from vultures? Do you have the funds to cover the closing costs?

My experience is that these middlemen aren't necessarily bad people but they get caught up in circumstances beyond their control and then they may desperately do things that you wouldn't think (and neither would they) they would do.

In my old age, I suscribe to the tortoise theory: slow and steady...........
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Old 03-23-2008, 09:18 AM   #14
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Run.... These things almost always end bad.
Have you ever been involved in one of "these things"? If so, please do share the specifics of your bad ending. Thank you.
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Why would this really smart real estate investor be coming to a small fry for money. Because he can get it from no one else!!! Why can't he get the money form anyone else? Because more sophisticated investors are not suckers...
Your assumption is that I am a small fry and a sucker. Why?
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Assuming he is not a crook and is competent (which could be a stretch)
Again, another negative assumption based on what knowledge?
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. . .you are talking to successful, conservative investors.
As are you. I just don't share your level of pessimism and distrust as routine.
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Old 03-23-2008, 09:19 AM   #15
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I for got this one: There is a reason they are called "second" trusts. Kind of like being late to the Easter Egg Roll - no eggs left and you do not get yours.

But, don't forget to come back next Easter and let us know how it went.
Who mentioned anything about a "second trust". These are all first position mortgages.
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Old 03-23-2008, 09:52 AM   #16
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AJ290

Welcome to the board & your first post here.

You seemed to have already decided this is a good investment, so I don't understand why you are asking this board for our thoughts.

I wish you all the best with your investment.
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Old 03-23-2008, 09:55 AM   #17
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Have you ever been involved in one of "these things"? If so, please do share the specifics of your bad ending. Thank you.
Your assumption is that I am a small fry and a sucker. Why?
Again, another negative assumption based on what knowledge?
As are you. I just don't share your level of pessimism and distrust as routine.
You asked what we think.

I have not experienced that type of investment directly... but I have often read about it or similar investment "Opportunities". I have even read about it happening where the general partner or guy managing the money and investments was in the same church for 10 years a lured a number of people in.

Some of these situations were scams from the beginning. Others were investments gone bad and by the time everyone caught on... all the money was gone.

About the sucker and small fry comment... no offense intended. We are all small investors in the scheme of things. In other words, limited funds, investing acumen, knowledge and resources to adequately research, quantify, and judge risk related to private investment. From the POV of the person offering the investment opportunity. At best you are an inexperienced investor that he is hoping to sign up, at worst you are the mark.

Yes I am skeptical...

IMHO - you should be also.
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Old 03-23-2008, 10:08 AM   #18
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Many assume property can not be bought at deep discount for cash ... having done several such deals, this is simply not true. Soo what it comes down to is the integrity of the person you're working with. If you can get a few decent references and are comfortable with investing in a falling RE market (I call it "catching knives"). Go for it!

Might also be worth a trip to the registry of deeds to see what this guy has done in the past. Are the property's equity tapped out with second/third positions ... might indicate larger cashflow problems. Or at least offer a few pointed questions regarding his past bussiness dealings.

FWIW, the people I paid 10% to have been asking me to invest more of thier cash. I'll be offering a similar deal to these investors when the time is right (it won't be 11% though). Still a little early IMO. Point being, it can work.
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Old 03-23-2008, 10:33 AM   #19
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Old 03-23-2008, 10:33 AM   #20
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AJ290

Welcome to the board & your first post here.

You seemed to have already decided this is a good investment, so I don't understand why you are asking this board for our thoughts.

I wish you all the best with your investment.
Fishing perhaps? The exact post is here
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