Hi all. I have some questions for those of you that have allowed your credit to used to purchase property. I have been talking (e-mailing) with an investor that is looking for credit investors. He has a deal on the table he is wanting to get closed but needs the credit backing to get it done. I have good credit so I could possibly make the deal fly, but I have concerns about using my credit this way. What he is offering is cash at close and then a profit split on the back end. He uses contracts stipulating each persons responsiblity to the property in detail. Also at the close of escrow he has a funds deposited into an escrow account that is serviced by a third party making sure the payment is made while the property is held. Does this sound like he is being fair and making the deal secure for the credit investor. Would you do it? Have you done deals like this? Was it good or bad? I would love to heard some input.
I am also a credit investor with several different rehabbers in my area since I have the FICO to do it still. Generally I provide the downpayment and at the closing table we walk away with cash. They give me my money back at the table always. They then do the rehab, pay to carry the house and when its sold we split profits 50/50. I have not gotten burned yet. Have done this over 20times in 2yrs and the avg rehab deals puts about 20-50K in my pocket (you do the math there) with a few netting me over 100K.
Just check out the investor. Do they have a portofilo to show you. References, financial statements, do they do rehab or have a rehab partner, if they always use same title co and mortgage broker, interview them as well.
As with any investment there is always a risk for a loss. But I like to think, the greater the risk, the greater the reward…
yrush-
Thanks for the input. Since I have never done this before I have a few more questions I am hoping you would be so kind to answer. What should I be looking for in his portfolio? He is a mortgage broker so I am going to assume that he “uses” himself, but I will definately check on the title co.
Also, I have read some horror stories about doing this kind of deal where the credit investor ended up with a foreclosure on record because the rehabber lost interest or whatever and never did anything with the property. I noticed in the stories I have found it seems the credit investor qcd the property to the rehabber, is it inappropriate that I would be unwilling to do this? I would consider qcd into both of our names but not just his when I am holding the mortgage on the property. What do you do with the deed when you partner up? Obviously the rehabber wants their name on it somewhere.
What do you think about the third party servicing the mortgage until the property is sold? It sounds like you just let the other partner do it based on trust.
Like I said I am just considering doing this, never done anything like this, so as much info as I cant get is helpful to no end.
Actually in all my deals both parties sign the note, but I am the only one responsible for the mortgage. He would become responsible if I died which is why the bank requires him to sign it as well, so both names appear on the HUD-1 statement as will as title. We actually both QCD the homes to our companies. I own 1 and he owns one, so both our companies collect the money when sold. Putting the home in a company name is for legal purposes on lawsuits as well as tax advantages for me.
Since he is a broker, he needs to disclose this in writting, which I guess he did or will do. There is nothing wrong with that. No one can get every property in there name. You can if you want, ask him to open a company with both your names, which is cheap sometimes and have both of you as owners on record.
Since the house is in your name and its a good buy, you can always refi the home if carrying cost runs out to carry it. I would ask him how he plans to carry the house. MY guys I team with are experienced in the field for 5-15yrs, many are contractors are excellent at finding deals. I trust them since they want to make money and not ruin there reputation in the area. They do alot of deals and we structure deals to get cashback to do rehabs and carry the home with creative financing methods at times. They do not escrow the funds but I do not worry about that. Its good to have escrow agent, but then make sure it requires both of you to sign on checks not going to the bank so he can not pull the cash out himself.
As for portofilo, ask him about his past rehabs and references of other people he partnered with. if the houses were sold on the MLS, ask which agent he uses…get a copy of the MLS listing showing sold and you can see profit margins.
Also what kind of profit will there be in this deal??? Ask him why he does not want the loan in his name?