Re: Creative financing deal - Posted by John Behle
Posted by John Behle on February 15, 2000 at 12:48:18:
I operate under a couple premises. One is that I don’t do out of area deals. Occasionally I will venture the next state over if the deal is right. If I or an investor’s funds are into the deal, then I always work under a “Worst case scenario” which means I might have to be very actively involved and end up owning some property that I then have to deal with. No problem in my area, but out of state is (for me).
I don’t know areas, markets, economies, etc. in different states. To me what is happening in a particular area with development, crime, etc. is crucial to investing.
Another factor is I generally can’t be competitive out of state. In my area I can do deals that no one else can and receive yields no one else does. That is because I am willing to do the due-diligence and deal with potential problems.
Another premise is not loaning against assets that can’t pay me easily. I don’t care if someone is worth 100 million - if they don’t have some substantial and safe collateral to put up - forget it. People rise and fall - properties don’t (as much or as quickly).
Someone can literally be “wealthy” one day and file bankruptcy the next. That can be because of lawsuits, injuries, scandal, accidents, business turnarounds, etc. More often than not, they were not really wealthy anyway - it was on paper or a sham. A property is easy to check out. A person can play smoke and mirror games that can be hard to see through.
There is a general “rule of thumb” too. That there is an “Inverse relationship” between a company or individual’s show of wealth (offices, autos, etc.) and their financial stability. Of course, that is a rule of thumb only. Their purpose are to get us to pause or look deeper for verification.
I just know too many millionaires that drive old pickups and too many “insolvent idiots” out trying to impress people with their show - especially potential investors.
So, who knows who your “client” is, but if there isn’t hard and fast real estate collateral (land is a challenge as Michael said) then don’t bother.
I would look for some good solid residential property with good LTV’s and I would also want to know the financial situation through financial statements, tax returns, etc. Of course a funding source making a hard money loan will do their own due diligence and have their own requirements.
If there are saleable notes, sell them. If there is just real estate as collateral, you will likely need a local funding source willing to make a hard money loan and you might be able to receive some points or a referral fee. They may be hesitant to give a fee and you need to check with state laws. In some areas you could only receive a fee by being a licensed mortgage broker or working with a licensed company. In other areas all you need to do is start a business and become one.