Secured By Real Estate Investment Offers
While searching for investment deals, I continue to come across these ads that says: " Earn 12% on your investment. Secured by Real Estate." Is there anyone that is familiar with these type of offers? Are they legitimate? What are they about?
Investors are looking for private money lenders. They use PML instead of going to traditional hard money lenders or to a bank. Legitimate? I do not know, but if the deal is secured by real estate, at least you will have a deed-of-trust and note to fall back on if the flipper fails to execute.
I did more research, and I was told that they essentially wanted me to apply for a construction loan to build a new house, put up $40,000 and they will sell the property on lease option basis to someone, and I will receive my interest payments on a monthly basis. They are basically managing a property for me. Does this make sense?
Newtree, check to see if they already have the lessee and investor lined up to take the property off your hand. If they do, make sure that the credit checks out for all parties involved.
Newtree, from your description, I thought that you were the financier of the project and it would be sold off to an investor as a leased investment once development is complete. You would earn a 12% return on your monetary investment in the development and the investor (the entity that buys the property w/ a tenant in place) would take the property off your hands.
If this was the case, then you would want to make sure that there are commitments to lease the property once construction is complete. Typically, a separate LLC/Corporation should be formed to take on the loan. It would be extremely risky if you were the only individual that would be liable for the loan.
Make sure to read through the lease contracts and purchase agreements to make sure that you are protected. Definitely get a RE lawyer to limit your downside.
Being a hard money lender is ok when the market is doing well, but the risk increases significantly when the market turns south.[ Edited by michaellee on Date 04/16/2008 ]
basically if a PG is required, there is not protection.
If these builders were looking for a equity rather than debt partner, they would have to give about 50% of the deal and have $$ in the deal.
12% is way too thin. Something like 15% and 3-5 points is what I would expect to have to pay for that kinda money.
Well,
I would have the loan structured like a construction loan.
Upon signing you get a first priority lien on the lot (make sure it is worth something).
Upon completing foundation work and passing inspection and showing lien waivers from all subcontractors, they get say $15,000.
Upon completing rough constr and passing inspection and showing lien waivers from all subcontractors, they get another $15,000.
Upon completing.....
You get the idea.
And they pay for the title insurance, the closing costs, your attorney or to keep it simple a few points upfront (which means cash).
Get a good construction loan mortgage document and work from there for your agreement.
We use an independent construction control auditor to monitor the construction progress. They make certain that the work has been done and the lien releases are filed by the Sub-Contractors before we release the next phase advances. Some title companies offer the service also. It adds costs, however, those costs are passed to the owner/builder.
Lock down an end user and meet with them face to face and do your own due dilegence on them. If you do not do this, then it is speculative (high risk) investing. You will then be subject to the market conditions where the property is located.
I suggest you that you start email marketing, first getting some leads from somewhere and start email marketing, so you can get customer reply also.
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