I started investing in these. So far no issues but I do hear there are defaults.
The defaults typically are working out well in they foreclose on the properties and with fees and penalties usually get everyone's principal back and sometimes even more.
My policy is as follows:
- I look for a LTV of 70% or lower. This gives room if property forecloses to make money even with fees and closing costs.
- I look for properties where the borrower is putting money in as well. If you have million dollar home with a $700K loan then he has $300K in it. He is less likely to default.
- I avoid the high yield ones and ones that are more than a year.
- I look at the properties on google maps, zillow, trulia, etc. I like to see what it has sold for in the past, what the neighboring properties are doing, etc.
I have only invested $50K across a bunch of different properties so far and I track them. So far no complaints and I may expand as time goes on.
There was one not far from where i live that came up. I would of done the whole damn loan because he wanted $300K at 10% for a property that i know is worth $500K. He was doing a flip and putting another $50K into it. He bought for $350K at foreclosure. So you look at those numbers and the risk seems low!
