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> I know this is an older thread, but I found it interesting that NO ONE brought up the single biggest problem with this entire deal. Can the friend actually qualify for the refinance
That's not the biggest problem. The biggest problem is that this is an unsecured loan to an individual.
To me, it's a terrible decision. If you were in real estate, then sure. You would understand all the different aspects. Bank owned properties are NOT easy to come by. Most are in crap condition. It sounds like either a scam or a guy that really doesn't factor in all the different problems that can occur.
You don't give a guy that you have no clue his aptitude in this game 100k to go grab some bank owned property. You can play lender and offer payments towards it so he would have incentive to pay you back. If you just hand over 100k with a promise, you have no guarantee this dude won't run for the hills with your money. Most private lenders will review all deals to ensure there is really a chance to make money. If the deal isn't there, they won't give the money.
If you want to go ahead with this, tell him to find some bank owned property. Take a look at the comps in the area. Take a look at the end price after repair. Have him speak to a bank or lender to ensure he can refi without problem. My thing is even with bank owned in this city you will not get a place at say 60k (which is what he would need to even make a profit). If you do find one, it would need at LEAST 50k repairs and the chances the property are in a good area that has a good turnaround time (whether it be rent or sell) is pretty low.
If you want to play the real estate game, do it right. Learn how to do it yourself. You can bank 40k in 6 months doing it on your own without tons of effort. You clearly have the financials to back you up and you can find a private or hard cash lender to finance while you flip. This "friend" is just a hopeful trying to cash in on the real estate craze without fully understanding how real estate works.
If you want to play the real estate game, do it right. Learn how to do it yourself.
Bingo! This is a high-risk project, if you're going to put up the cash then do it yourself and make sure everything gets done properly.
One question, is the building permitted? I assume not, so don't forget this is NYC - getting the building permits take months. I doubt he can turn this around fast enough to permit, build, lease, re-fi, and give you principal back plus 15K return
So basically a friend who got involved with real estate told me if I loan $100,000 so I can get a 15% return on investment within 8-9 months. Basically he asked me to give him $100,000 he would go out and buy a rehab home. The properties he says they are in the South Bronx and Canarsie Brooklyn. He says 20-30k will go into fixing it up so he can rent it out. He said I will get my monies back with the 15% is thru him refinancing the home bc the appraisal will be higher then the actual value what the home is worth and thru receiving rental payments from tenants. The title would be in his name since he refinancing and he says Im secured bc I will be a lien holder on the property. He basically says this is a trust deed investment. Would you invest $100,000 with 15% with him or does this sound like a scam ?
If your willing to play around with 100K yeah sure. Go ahead. Make sure you get it on paper. If it's your savings and not play money then hell no.
Bingo! This is a high-risk project, if you're going to put up the cash then do it yourself and make sure everything gets done properly.
One question, is the building permitted? I assume not, so don't forget this is NYC - getting the building permits take months. I doubt he can turn this around fast enough to permit, build, lease, re-fi, and give you principal back plus 15K return
There ARE some rehabbers that don't use banks to finance. They use private lenders. But these people usually do hard cash lenders first and build a resume of houses they have done before. They know the game and they know how to do this. If you can find them, then do it. Your risk is low and you can learn a thing or two in the process.
So, you have $100,000 in cash sitting around and want to know if you should give it all to your friend who wants to flip a house. I'd say the answer to that is 'no way' because that's a really risky position to be in. Great rewards come at great risk. 15% in 6-8 months is a great reward, so figure it out...
But this begs the question: why do you have $100,000 in cash just sitting around? Why haven't you already put some of it into less risky investments? Do you already have a large non-cash position that's invested?
Just curious.
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