Legit or Madoff's Cousin?

Financing, Hard Money Lenders, Private Money
1

Hello-

I have a good friend who started invested with a guy who buys houses from banks (in lots) then turns around and sells them for 2-3 times what he paid. He pays all cash for the houses. My friend has been loaning him money on short term deals (getting deeds of trust) that are anywhere from 2 weeks to 3 months. The returns are roughly 7% for the 2 week deals and up to 20% for the 3 months deals. Like I said my friend has been doing deals with him for about 2 years now and has gotten all of him money back at times (when he needed it). I think this would be a great way to build my cash reserve before I start purchasing properties. My questions is are these amounts of interest being paid normal, hard to find but possible, or scam?
Then again I am new to this and maybe it is legit. In your experience have you seen these kind of returns for people? How could I check to see if this guys company is legit. He says he has been in business for 20 years. Thanks for any information you can provide.

2

In simple terms, your friend is a hard money lender to another investor/company who buys pools of REOs from banks and flips them. Of course I would do my due diligence before lending your money out, but nothing from your story raises any red flags in my eyes.

3

Being a HML can be a great way to grow your wealth while protecting your assets… IF you know what you are doing. If you don’t it is a great way to lose your money FAST! Another option is to invest with an established HML.