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Old 05-30-2020, 08:56 AM   #61
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Originally Posted by OldShooter View Post
So ... I will ask you my question:

Why would anyone pay this kind of interest unless they were completely frozen out of not only the regular loan market but also out of the asset-based loan market? Teeth-grinding risk and no assets, maybe?"

Also, what is the average size of these loans?

If I understand you correctly, you are not doing private equity. You are making or buying private loans. The difference is that a loan has no real upside potential; your return is simply the payments.

I have been accredited for maybe 35 years and have made a number of private equity investments, all but one reasonably successful. There was a period around 1980 when interest rates were crazy where I did buy and make money on a few residential financing loans, but nothing very big. Sub-$100K kind of numbers. But that was then and this was now.
I've loaned to a few types of entities from $50K-$150K each, all with long history of being very good at what they do with plans that mitigate risks. They tend to pursue initial loans with standard channels then get rest from private investors at higher rate then refinance when risks are lowered enough over tiem to get a lower rate. My brother has been doing it for over 20 years with no failure rate (in loans), though I set expectations for a 20% failure rate. I've had 3 that closed out after refinanced and then rinse repeat. Have about 10 loans active now, netting about $100K/yr interest (into Self-Directed IRA). One expected to be refinanced later this year, a couple likely to be refinanced next year. Rinse/repeat. These loans typically last 3-5 years, sometimes only 2. But need to accept it could be more than 5 years.

Am also in longer term equity like a pharma that has existing drug with opportunities for other uses they've been researching with positive results. Past phase 3 trial and drug application submitted, current valuation is several magnitudes what I paid last few years. Could fail, which I'm willing to accept.

Am tagging along as a smaller player within a group of Harvard MBAs who've been doing PE for a couple decades. They vet out the opportunities and I pick from several they find each year.
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Old 05-30-2020, 10:08 AM   #62
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Originally Posted by jmmec View Post
Hi there,

I am a single 51 year old male and have been browsing this site pretty frequently.

I'm in the software industry and the writing is on the wall that my career is unlikely to last much longer, so I've been in the severe savings mode for many years now. I'm ready to retire, especially since I have several low-cost hobbies and other interests to pursue. Travel doesn't interest me since I love the mountains where I live where life and history is affordable and rich!

Is my plan workable? Any gotchas? Other considerations?

Thanks so much!

Your plan sounds workable. Don't fret about the details. Just do it.

Since you live in the mountains, I suggest the following:

1. Work in your spare time as a hiking guide or a ski instructor which is seasonal and not year round.
2. Become a tutor for teenagers for software instructions.
3. Work as a handyman since living is less populated areas there should be a need for extra temporary work.
4. Become an unpaid volunteer to help your community.
5. Become a volunteer fireman to fight large grass fires.
6. Get to know your local retail store owners who may offer your some part time work.

My point: When in retirement, do what makes you happy. Reach out to people. Other people provide friendship, part time or temporary job opportunities and satisfaction.
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Old 05-31-2020, 08:56 AM   #63
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Originally Posted by JustVisitingThisPlanet View Post
I've loaned to a few types of entities from $50K-$150K each, all with long history of being very good at what they do with plans that mitigate risks. They tend to pursue initial loans with standard channels then get rest from private investors at higher rate then refinance when risks are lowered enough over tiem to get a lower rate. My brother has been doing it for over 20 years with no failure rate (in loans), though I set expectations for a 20% failure rate. I've had 3 that closed out after refinanced and then rinse repeat. Have about 10 loans active now, netting about $100K/yr interest (into Self-Directed IRA). One expected to be refinanced later this year, a couple likely to be refinanced next year. Rinse/repeat. These loans typically last 3-5 years, sometimes only 2. But need to accept it could be more than 5 years.
Well good for you. It sounds like you have had good luck. Re the OP, though, I would not advise him to get into this type of thing. Unsecured loans from creditors who have no conventional options. Not for me either. This current economic hit should provide a good test of the strategy. Beware Taleb's Turkey: https://www.businessinsider.com/nass...turkey-2014-11

Quote:
Originally Posted by JustVisitingThisPlanet View Post
Am also in longer term equity like a pharma that has existing drug with opportunities for other uses they've been researching with positive results. Past phase 3 trial and drug application submitted, current valuation is several magnitudes what I paid last few years. Could fail, which I'm willing to accept ...
I wouldn't advise the OP to do this either except on a very small scale, but it is great fun. Part of the fun is the virtually unlimited upside and the limited downside. I have seen both sides but on average have done fairly well.

Quote:
Originally Posted by JustVisitingThisPlanet View Post
Am tagging along as a smaller player within a group of Harvard MBAs who've been doing PE for a couple decades. They vet out the opportunities and I pick from several they find each year.
Presumably they charge a fee for this. How do you know that the really good deals are not going to heavy retail hitters and to institutions? I have always avoided "dealers" because I think small retail investors typically get offered only the deals that the bigger customers refuse. Writing a bunch of small tickets is more work than writing one big one, so why wouldn't the big guys get first pick?
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Old 05-31-2020, 09:31 AM   #64
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Yeah agree the OP should start small if getting into PE. I started with $50K (small % of portf) then was several years before getting deeper into PE via Self-Directed IRA. The loans are first lien BTW. The pharma's existing product sales are increasing significantly every quarter so reduces risk of my cost basis if new product/future valuation fails. We look for many existing variables/negotiations that reduce risk.

The group I'm involved with might charge 1% fee depending on loan, which my brother negotiates for me as he is a much bigger player at this point and I tag behind him. The default is 2%-3% I believe. He also negotiates some deals himself and he pools family/friends, asking for donations to his charity if they come through.

Connections help when getting into PE or find someone you can trust who knows how to negotiate deals that reduce risk as much as possible.
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Old 05-31-2020, 09:49 AM   #65
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... The loans are first lien BTW. ...
With respect, if you have been told this I'd suggest that you check it out carefully. For business bank loans that I've signed and am familiar with, the bank/aka senior lender is in first position as a requirement of making the loan. They also insist on 100% of the borrower's assets as collateral. You can have your attorney check UCC filings to verify your position.

If you are senior, then the question becomes how do you deal with the collateral in a default. Some things, like cars and trucks, are not difficult. Inventory, though, may be specialized, old, or otherwise compromised. Hiring an attorney and a liquidator also eats into the proceeds.
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Old 05-31-2020, 10:11 AM   #66
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Yes, the Secured Promissory Notes do specify 'first-lien'. My brother and his lawyers have been doing this for 20 years. Thanks for the Sanity Check. Sincerely!
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Old 05-31-2020, 03:56 PM   #67
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Really interesting back-and-forth on PE investing, but waaaayyyy too risky for me.
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Old 05-31-2020, 05:26 PM   #68
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Risk for the sake of risk is foolish. Informed risk starting with a small portion of portfolio is better than plan to burn through cash, especially when still working. But granted, to get in PE world would recommend hooking up with someone who knows what they are doing. And there are many ways to successfully invest.
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Old 06-05-2020, 09:06 AM   #69
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No worries. One of the reason investing looks complicated is that it is in the industry's best interest to intimidate and confuse its customers. Most of us here have broken away from that, but for all the complicated blather we love to post and argue about, successful investing is quite simple. Here is my standard recommended reading list:

First, two mandatory reads.

  • "If You Can" by William Bernstein https://www.etf.com/docs/IfYouCan.pdf (free 16 page download) This one is really aimed at younger people but it is free, it's an easy read, it has reading recommendations, and it will give you a taste of how easy this really is.
  • "The Coffee House Investor" by Bill Schultheis https://www.coffeehouseinvestor.com/ Bill is about life balance. Its an easy and very worthwhile read. He even gives you a recipe for pumpkin pie. Hard to go wrong with that.

These next books are classics. Read the samples at Amazon and pick one or two of them that feel comfortable for you.


When you finish this list, you will know more about investing than many registered reps, including some stuff that they do know but would never tell you.
Thanks for this post.

I have decided I will pay my DD and her BF each $50.00 to read “If You Can”

DD already has a Roth at 20 yo and has asked me to help dear BF at 21 yo to set his up.

Hopefully they will drink the water they are led too!
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Old 06-05-2020, 09:13 AM   #70
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... DD already has a Roth at 20 yo and has asked me to help dear BF at 21 yo to set his up. ...
Congratulations on an excellent parenting job.
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