My Brother-In-Law needs help (Real Estate Investment Fund)

[spex x]

I run an RE business. I've got good relationships with private investors to whom I sell notes, etc., and I GUARANTEE a 20% return to ALL my investors for every deal that I bring them. My investors have FULL RECOURSE to collect the money that they loan me - that means if the deal doesn't work out, i'm still on the hook for the cash.

My RE business generates anywhere from 20% all to way to 150% yields, and my average yields are right around 80%. If you can't make 20% in RE, then you would never choose RE as an investment strategy. Its too much.

The point is that 9.75% guaranteed is not out of the ordinary at all for many RE investors, and its not unheard of at all to personally guarantee the money. In fact, its quite common.

I'd say that if your brother doesn't understand the investment too well, then he should probably steer clear of this deal. The high interest rate seems so juicy, but there are a lot of ways to get screwed. His friend might have all the best intentions, but ultimately not know what he's doing. I guess I'd want more security on a 100k investment than, 'he seems like a trustworthy guy'. I'd want to know EXACTLY where the money is going, how its secured, who will be spending it and on what, the strategies for making money with the investment, who will be doing the work, the trust's track record, the experience of the managers, etc.

Clearly your man doesn't understand the investment. Stay away for now, learn more, and go back to the guy later. If he's as good as he says, he'll be around next year.

[Phone Booth]

[ QUOTE ]
I run an RE business. I've got good relationships with private investors to whom I sell notes, etc., and I GUARANTEE a 20% return to ALL my investors for every deal that I bring them. My investors have FULL RECOURSE to collect the money that they loan me - that means if the deal doesn't work out, i'm still on the hook for the cash.

My RE business generates anywhere from 20% all to way to 150% yields, and my average yields are right around 80%. If you can't make 20% in RE, then you would never choose RE as an investment strategy. Its too much.

The point is that 9.75% guaranteed is not out of the ordinary at all for many RE investors, and its not unheard of at all to personally guarantee the money. In fact, its quite common.

I'd say that if your brother doesn't understand the investment too well, then he should probably steer clear of this deal. The high interest rate seems so juicy, but there are a lot of ways to get screwed. His friend might have all the best intentions, but ultimately not know what he's doing. I guess I'd want more security on a 100k investment than, 'he seems like a trustworthy guy'. I'd want to know EXACTLY where the money is going, how its secured, who will be spending it and on what, the strategies for making money with the investment, who will be doing the work, the trust's track record, the experience of the managers, etc.

Clearly your man doesn't understand the investment. Stay away for now, learn more, and go back to the guy later. If he's as good as he says, he'll be around next year.

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How bad do they perceive your credit to be for you to need to pay 20% for a full recourse loan? People charge lower rates on prosper.com. You can get better rates on an unsecured basis from a lot of banks. College students with no jobs, no credit history beyond student loans they haven't started paying back can get credit cards with similar rates. If your returns are as high as you say they are, you should've been able to accumulate enough equity to significantly lower your cost of capital through normal channels.

[jaydub]

[ QUOTE ]
I run an RE business. I've got good relationships with private investors to whom I sell notes, etc., and I GUARANTEE a 20% return to ALL my investors for every deal that I bring them. My investors have FULL RECOURSE to collect the money that they loan me - that means if the deal doesn't work out, i'm still on the hook for the cash.

My RE business generates anywhere from 20% all to way to 150% yields, and my average yields are right around 80%.

[/ QUOTE ]

Bet that was fun while it lasted.

J

[spex x]

[ QUOTE ]
[ QUOTE ]
I run an RE business. I've got good relationships with private investors to whom I sell notes, etc., and I GUARANTEE a 20% return to ALL my investors for every deal that I bring them. My investors have FULL RECOURSE to collect the money that they loan me - that means if the deal doesn't work out, i'm still on the hook for the cash.

My RE business generates anywhere from 20% all to way to 150% yields, and my average yields are right around 80%. If you can't make 20% in RE, then you would never choose RE as an investment strategy. Its too much.

The point is that 9.75% guaranteed is not out of the ordinary at all for many RE investors, and its not unheard of at all to personally guarantee the money. In fact, its quite common.

I'd say that if your brother doesn't understand the investment too well, then he should probably steer clear of this deal. The high interest rate seems so juicy, but there are a lot of ways to get screwed. His friend might have all the best intentions, but ultimately not know what he's doing. I guess I'd want more security on a 100k investment than, 'he seems like a trustworthy guy'. I'd want to know EXACTLY where the money is going, how its secured, who will be spending it and on what, the strategies for making money with the investment, who will be doing the work, the trust's track record, the experience of the managers, etc.

Clearly your man doesn't understand the investment. Stay away for now, learn more, and go back to the guy later. If he's as good as he says, he'll be around next year.

[/ QUOTE ]

How bad do they perceive your credit to be for you to need to pay 20% for a full recourse loan? People charge lower rates on prosper.com. You can get better rates on an unsecured basis from a lot of banks. College students with no jobs, no credit history beyond student loans they haven't started paying back can get credit cards with similar rates. If your returns are as high as you say they are, you should've been able to accumulate enough equity to significantly lower your cost of capital through normal channels.

[/ QUOTE ]

Sure, you WOULD be correct, except that institutional lenders tend to shy from the type of RE deals that I like to do - mobile homes, mobile home parks, manufactured homes on land, and new development, and that type of thing. Thats not all I do, but right now its most of what I do.

Unfortunately Prosper.com loans are 1) limited to $25k max, and 2) you can only have one at a time. I sometimes do use credit cards to fund deals b/c I get low interest rates and I've got a lot of credit. The problem is that it hurts my credit to access those lines, so I don't like to touch them unless I have to.

You're right - I COULD get less expensive money. But it would be a lot of work, would slow down a lot of deals, etc. If I need $50k for a deal, I like to just make a call and have the money that day. I pay more for that convenience, but I rarely lose a great deal. To me, its worth it. Its not for everyone.

[spex x]

[ QUOTE ]
[ QUOTE ]
I run an RE business. I've got good relationships with private investors to whom I sell notes, etc., and I GUARANTEE a 20% return to ALL my investors for every deal that I bring them. My investors have FULL RECOURSE to collect the money that they loan me - that means if the deal doesn't work out, i'm still on the hook for the cash.

My RE business generates anywhere from 20% all to way to 150% yields, and my average yields are right around 80%.

[/ QUOTE ]

Bet that was fun while it lasted.

J

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I'm not really sure what this comment means. Maybe you're from the 'its a bad time to invest in RE' school of thought. I dunno, right now I'm buying as many properties as I can in the depressed market. Its nice because all those families that got forclosed on are looking for rentals, and my average time on market right now is 2 weeks for most of my properties.

Right now I'm buying properties that average $300-$400 positive cash flow per month, and capturing $30k-$60k in equity in every one I buy. Its a SWEET time to be an RE investor.

[Phone Booth]

[ QUOTE ]
Sure, you WOULD be correct, except that institutional lenders tend to shy from the type of RE deals that I like to do - mobile homes, mobile home parks, manufactured homes on land, and new development, and that type of thing. Thats not all I do, but right now its most of what I do.


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Is it just me or earlier in the year commercial mortgage shops were pretty much handing out free money against exactly the collateral type you're describing? Or are you already leveraged to the hilt and looking for more of mezzanine/equity type of funding? Assuming what you're doing meets HUD requirements, you can even get FHA to chip in with cheap mortgage insurance. I'm assuming it's a question of leverage, since there's no way you can get, at least in the US, the kind of return you're describing without taking extremely leveraged positions to begin with, but in that case I'm not even sure why you need to borrow very much extra, unless you like to keep those partners happy for potential future ventures - this may be a valid motivation if the alternative is a subordinate or mezzanine loan with less flexible terms at 12-15%.

[+EV]

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9.75% guaranteed return is impossible. This reeks of a scam (or at least not a full disclosure of the risks involved).

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The current investment strategy that my partner and I are looking to sign people up for will yield 10% guaranteed. I don't want to share a lot of details but, based on investor input of 25K we can purchase a property that will yield a positive cash flow of 10% annually. The investment is returned in the form of a quarterly interest payment. The minimum investment amount is 25K and the minimum investment period is 5 years (although it could be less if we had a lot of investors lined up).

+EV

PS it is an investment based on a 30yr Principle + Interest loan so no funny business there. Very stable over the long haul.

[+EV]

[ QUOTE ]
[ QUOTE ]
[ QUOTE ]
I run an RE business. I've got good relationships with private investors to whom I sell notes, etc., and I GUARANTEE a 20% return to ALL my investors for every deal that I bring them. My investors have FULL RECOURSE to collect the money that they loan me - that means if the deal doesn't work out, i'm still on the hook for the cash.

My RE business generates anywhere from 20% all to way to 150% yields, and my average yields are right around 80%.

[/ QUOTE ]

Bet that was fun while it lasted.

J

[/ QUOTE ]

I'm not really sure what this comment means. Maybe you're from the 'its a bad time to invest in RE' school of thought. I dunno, right now I'm buying as many properties as I can in the depressed market. Its nice because all those families that got forclosed on are looking for rentals, and my average time on market right now is 2 weeks for most of my properties.

Right now I'm buying properties that average $300-$400 positive cash flow per month, and capturing $30k-$60k in equity in every one I buy. Its a SWEET time to be an RE investor.

[/ QUOTE ]

Dude, you are so right!

+EV

[spex x]

[ QUOTE ]

Is it just me or earlier in the year commercial mortgage shops were pretty much handing out free money against exactly the collateral type you're describing? Or are you already leveraged to the hilt and looking for more of mezzanine/equity type of funding? Assuming what you're doing meets HUD requirements, you can even get FHA to chip in with cheap mortgage insurance. I'm assuming it's a question of leverage, since there's no way you can get, at least in the US, the kind of return you're describing without taking extremely leveraged positions to begin with, but in that case I'm not even sure why you need to borrow very much extra, unless you like to keep those partners happy for potential future ventures - this may be a valid motivation if the alternative is a subordinate or mezzanine loan with less flexible terms at 12-15%.

[/ QUOTE ]

I don't know if its you or not, but i've tended to have a difficult time finding financing for my deals. I'm sure that I can be done, and I have developed some relationships with smaller, local, portfolio lenders to work with me on some deals.

As to most of the other stuff you said, I'm not really sure what you're talking about. Here is what I usually do: Buy or develop a property with my own cash; sell the property on a note for 2-3 times what my cost was; sell 1/2 of the cash flow from note to a private investor, discounting the note so that it yields 20%. My investor gets 20% and I usually get all my money back from selling an interest in my note, PLUS I get to keep 1/2 of the cash flow from the note. The note payments are full recourse.

[petp_the_greek]

investing rule to live by: IF ANYONE GUARRANTEES YOU A RATE OF RETURN THAT SEEMS TOO GOOD TO BE TRUE, ITS A SCAM.

run away from this as fast as u can.