Hello all:
Recently I met someone who offered me a guaranteed 13% return without all the hassles. Basicaly he owned a mobile home park and I would lend him 10k to set up a new mobile unit, in return I will get the guaranteed monthly interest and a first lien on the mobile home property. At the end of the year, I have the option to get my principals back. The guarantee is in promissory note, and I don’t have to do any work.
The retrun sounds great to me (I am making less than 2% on my cash and negative returns on my stock :-[ ) . But are there any hidden risks? Can the pros here lend me a hand and help me to analysize the deal? I don’t want to lose the principal.
I Would like to share my experience and what to look for!
First and foremost what is the risk to your money and what is your ROI.
Before I consider any of my money or my several partners I would consider the Collateral first and fore most because you really will have a security instument against the property usually in the form of a mortgage note or trust deed depending on the state. So if any thing goes wrong you may foreclose or I would suggest an automatic
Deed Lieu of forecloser in your note that way you do not have to waist time or go through the legal system depending on the state. and you could do a quick sale to recoupe your money. I would not do a promissary note you are not secured against the property
Typically you do not want ot go over 70% but in some cases you can go to 80% just look more closely to your credit risk of the borrower. I also charge some where between 10-12% simple interest which basically means interest only payments( you are offered 13%) and about 4-5 points to close.
Which is a good ROI if every thing works out as mentioned.
Now You may want to consider how you are going to play with the term of the loan you may want to be a long term PI which means you give a 5-15 year note or you many want to hold your loans for only 3-12 months only you can decide that because it depends on what kind of ROI you want.
Don’t I repeat don’t get caught up in the excitement of the potential investor telling you how great the deal is until you do your due dillience, which include title appraisal( as is and ARV) I would also have the potention RE investor give you at least 3 bid on the work that is needed so that you know what you are getting it to if rehab work is needed
The only thing that I would caution you on is that you are talking about a mobil home and selling this property(if you need to) may be difficult because there are not very many lenders that want to lend on that kind of Collateral especially for bad credit people.(this maybe way the potential buyer is coming to you)
unless you plan to go the route of investing in notes, i would stay away.
supposing you do get the deed, now what do you do.
if you have good credit and money to invest there are much
better investments.
i just bought 3 houses in utah, brand new, for 10% under
appraisal, property management in place.i’m lease-optioning
them for $150 cashflow each with 0% down. the builder
also paid for closing costs.